Data from Statistics Canada showed a 0.4% decline in retail sales in February, following a 0.6% drop in January, reflecting the impact of concerns over escalating trade tensions between the United States and Canada. This came after a 2.6% increase in December as a result of the suspension of the federal sales tax on certain goods. The most notable decline was in auto sales, food, and beverages. Additionally, the Bank of Canada’s seventh consecutive rate cut failed to boost consumer confidence, with consumers expressing growing concerns about their job security and financial safety.

Key factors behind the decline

1. Trade uncertainty: Rising fears surrounding the implications of the trade war between the United States and Canada have led consumers to cut back on spending.

2. Sales tax suspension: The surge in sales in December was linked to the decision to suspend sales tax on certain goods, resulting in a short-term effect.

3. Auto sector in the lead: Auto sales experienced the largest percentage decline, alongside a decrease in food, beverage, and sporting goods sales.

4. Divergence in growth: Excluding the auto sector, retail sales increased by only 0.2% in January, compared to a strong increase of 2.9% in December.

5. Consumer confidence: Polls indicate growing concerns about job and financial stability, reflecting a cautious spending environment.

Future outlook

Benjamin Reitzes, an expert at the Bank of Montreal, stated that the drop in consumer sentiment due to tariff concerns "bodes ill," predicting continued weak spending until the trade situation between the United States and Canada becomes clearer. The central bank may continue its rate-cutting policy to stimulate spending, but trade tensions remain the main obstacle to consumption recovery.