Retail spending ended 2018 with a thud as sales fell 0.2% from November, driven by weak activity in Metro Vancouver.
With a downward revision to the previous month’s estimate, this was a second straight monthly decline. Retail sectors dragging on December activity included motor vehicle and parts sales, which we estimate fell 2.5% from November and 10% year-over-year. Furniture and furnishings sales also deteriorated.
Higher interest rates over the past year and housing policy measures are biting into demand. Clothing sales and electronics sales pulled back after November gains.
Recent softness contributed to full-year growth of only 2%, compared with a 9.3% gain in 2017. The 2018 slowdown reflected a broad deceleration among the retail segment led by autos, gasoline and building material and garden stores.
A bright spot was clothing and accessory stores, which recorded a 9.1% sales gain. Metro Vancouver sales underperformed the rest of the province as annual sales rose 0.3%, compared with 3.6% elsewhere.
Nonetheless, consumer demand fundamentals will remain positive with low unemployment, wage increases and population growth. In addition, lower gasoline prices can raise discretionary spending in other areas. Slightly higher interest rates in 2019 compared with recent years are a small negative for borrowers. Overall, we see a modest increase in retail sales during 2019.
B.C.’s tourism sector, meanwhile, posted a banner year in 2018 as international tourism inflows drove robust growth despite a slip in late-year momentum. The boost from a low Canadian dollar and rising global travel demand has driven this trend, while U.S. politics may be sending some travellers to destinations outside of the U.S.
A rising trend through much of the year lifted total tourist inflows for the first time to more than six million persons. This was 6.4% above 2017. Specifically, U.S. tourist inflows rose 7% to 3.88 million persons, which surpassed the previous high of 3.79 million observed in 2002. Overseas visits continued to set new records with 2.18 million tourists, up 5.2% from 2017.
2018’s increase in overseas visits was driven by Brazil (up 78%), China (up 9.1%), India (up 19%) and Taiwan (up 20%). Visitors from China, Mexico and to a lesser extent India have driven the upshift since 2010.
A low Canadian dollar will continue to support tourism demand, though growth in visitors is likely to be moderate given slowing global growth. Nevertheless, demand will likely remain solid, contributing to growth in tourism services and related sectors in B.C. •
Bryan Yu is deputy chief economist at Central 1 Credit Union.
