Canadian consumer spending rebounded during the first quarter even as United States tariffs and geopolitical tensions loomed over the economy. An advance estimate suggests retail sales increased 0.6 per cent in March following a 0.7 per cent gain in February, Statistics Canada reported on Friday. That would mark the first time retail sales rose for three consecutive months since 2023.
Consumer Spending Details
Economists surveyed by Bloomberg were expecting a 0.9 per cent increase in February retail sales, following a 1.2 per cent gain in January. Consumer spending edged up in February across most sectors. The largest gains were recorded at motor vehicle and parts dealers, which rose by one per cent, marking a second straight monthly increase.
Core retail sales, which exclude gas stations and car dealers, also rose for a second consecutive month, posting a 0.6 per cent gain. The increase was led by higher sales at general merchandise retailers as well as food and beverage retailers. In volume terms, retail sales rose by 0.3 per cent in February.
Economic Context
Economic growth has remained tepid in Canada as U.S. sectoral tariffs continue to challenge some industries. However, the economy has managed to avoid a recession, with data suggesting real gross domestic product grew modestly at the start of the year. Meanwhile, the labour market has been unfavourable to job-seekers, but the unemployment rate has remained relatively steady, hovering at 6.7 per cent in March.
In addition to trade tensions, the Iran war is also expected to have knock-on effects for the Canadian economy, as the surge in oil prices risks fuelling inflation and stretching consumers’ wallets. The statistics agency didn’t provide details for the March estimate, which was based on responses from 63 per cent of companies surveyed. But surging gasoline prices driven by the Middle East conflict, which began on Feb. 28, likely drove retail sales higher.
“Overall, it appears that retail sales in Q1 have posted their best quarter for growth since before U.S. trade tensions started to negatively impact consumer sentiment,” Andrew Grantham, senior economist at Canadian Imperial Bank of Commerce, said in a report to investors. “However, with higher pump prices limiting the ability of some households to make discretionary purchases, we expect consumer spending to slow again in volume terms during Q2.”
