Canadian Retail Sales Demonstrate Consumer Tenacity in Face of Economic Challenges
Canadian consumers exhibited notable resilience during the final quarter of 2025, as retail sales managed a slight increase of 0.1 percent. This marks the seventh consecutive quarterly rise, even though December experienced a month-over-month decline of 0.4 percent. The data, released by Statistics Canada, highlights a complex economic landscape where spending patterns are fluctuating amidst persistent uncertainties.
December Declines Concentrated in Specific Sectors
The monthly decrease in December was primarily driven by three out of nine retail sectors. Significant declines were observed in building materials, furniture and electronics, and auto sales. However, these losses were partially offset by gains in other areas, including gasoline stations, sporting goods, hobbies and books, as well as health and personal care stores. This sectoral variation underscores the selective nature of consumer cutbacks.
Shelly Kaushik, an economist at BMO Economics, commented on the trend, stating, "Ultimately, consumer spending is holding on despite ongoing economic uncertainty." She further noted that the preliminary estimate for January retail sales shows a substantial jump of 1.5 percent, which would represent the strongest growth pace since 2024.
Annual Performance and Underlying Volatility
For the full year 2025, retail sales increased by four percent compared to the previous year. This growth was largely led by motor vehicle and parts dealers, with sales volumes rising 2.3 percent. Despite this annual gain, the recent months have been characterized by significant volatility.
Charles St-Arnaud, chief economist at Servus Credit Union, explained, "Retail sales have been quite volatile in recent months, affected by the elevated uncertainty, the drop in consumer confidence earlier this year and the lack of improvement in purchasing power in recent years." For instance, sales pulled back in December following a 1.2 percent rise in November, leading many economists to describe inflation-adjusted retail sales as "moving sideways."
When adjusting for slowing population growth and inflation, St-Arnaud indicated that retail sales were essentially flat in December but showed a 1.7 percent increase from the same period last year. He pointed out that relatively level sales throughout 2025 speak to consumer resiliency, which could help support gross domestic product in the first quarter of 2026, potentially offsetting weaknesses in business investment and exports.
Mixed Outlook Among Economic Analysts
While some economists highlight consumer strength, others express more caution about the future. Tony Stillo, head of Canada Economics at Oxford Economics Ltd., stated, "We continue to expect consumer outlays in the first quarter will grow only modestly." He cited several headwinds, including a declining population, job insecurity due to ongoing trade tensions, modest job losses, and another wave of mortgage renewals at higher interest rates. Stillo suggested that the federal grocery and essentials benefit might provide a mid-year boost to spending.
David Rosenberg, president of Rosenberg Research & Associates Inc., offered additional insight, noting that "cyclically sensitive expenditures" weakened after excluding essential items like personal care products, food, and gasoline. He also observed disinflationary pressures, with retailers reducing prices by 0.3 percent month over month in December.
The overall picture emerging from the data is one of a Canadian consumer base that is managing to sustain spending despite economic pressures, though the path forward remains uncertain with divergent views on the sustainability of this resilience.
