Retail sales were not as weak as anticipated in February, as they contracted 0.2 percent on the month, less than Econoday's consensus expectation of a 0.6 percent drop. Sales increased 4.3 percent year-over-year.

Real sales showed a weaker picture than the headline suggested, as volumes fell 0.7 percent from the previous month. What's more, preliminary data point to a further deterioration in nominal sales in March, with the flash estimate down 1.4 percent.

In February, the decline was concentrated in 4 of 9 subsectors, representing 48 percent of retail trade, led by a 5.0 percent decrease in gasoline and fuel (down 4.9 percent in volume), and a 1.6 percent drop in general merchandise sales. Bringing some positive offset, sales of motor vehicles and parts rose 0.9 percent on the month.

Core retail sales, excluding gasoline stations and fuel vendors and motor vehicle and parts, edged up 0.1 percent, led by clothing, clothing accessories, shoes, jewellery, luggage and leather goods retailers (4.4 percent). Housing-related sales. were up as well: building material and garden equipment and supplies rose 0.2 percent and furniture, home furnishings, electronics and appliances were up 1.1 percent, led by furniture and electronics and appliances.

Regionally, sales fell in six provinces, with British Columbia recording the largest drop.

Including today's data, Econoday Consensus Divergence Index is currently at 1, consistent with an economic performance in line with expectations, hence a stable monetary policy stance.

Overall, the report indicates demand is weakening as the Bank of Canada is expecting in response to its 2022 interest rate hikes. The central bank projects the Canadian real GDP to expand at a 2.3 percent annual rate in the first quarter before slowing to 1.0 percent in the second quarter. The economy should move to excess supply in the second half of this year, with household spending constrained by high interest rates. While strong population growth is a source of support for household spending, it is also a source of higher supply, which means the economy could grow without adding inflationary pressures. Consumption is seen adding 1.1 percent point to GDP growth in 2023 and 0.5 points in 2024.

Retail sales in February are expected to fall 0.6 percent following a surprisingly sharp 1.4 percent rise in January.

Retail sales measure the total receipts at stores that sell durable and nondurable goods. The headline data are reported in cash terms and disaggregated into eleven main subsectors. Aggregate volume figures are also provided.

With consumer spending a large part of the economy, market players continually monitor spending patterns. Data are available both for total retail sales and those excluding autos and for 16 different store specializations. Since autos account for over 25 percent of retail sales, the sector can have a pronounced impact on overall sales given their volatility. Retail sales are used to estimate the goods portion of personal consumer expenditures in the quarterly GDP accounts, accounting for about 50 percent of the total.

The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth.

Retail sales not only give you a sense of the big picture, but also the trends among different types of retailers. Perhaps apparel sales are showing exceptional weakness but electronics sales are soaring. These trends from the retail sales data can help you spot specific investment opportunities, without having to wait for a company's quarterly or annual report.