On the surface, Canada's retail sales report for March "looked good", but "details matter", said Rosenberg Research after Friday's data release.
The headline came in up 0.9% month over month, "handily beating" the consensus forecast and Statistics Canada's preliminary estimate of a gain of 0.6%, noted Rosenberg Research.
(StatCan's preliminary estimate for April retail sales is also a 0.6% month-over-month increase.)
The rest of the retail sales report, however, was "very weak", said Rosenberg, noting for example, core retail sales, excluding motor vehicles and gasoline, fell by 0.1% month over month.
According to the research, the "key factor" in the upside surprise to the headline number was the 14.7% month-over-month jump in gasoline prices. That was the largest month-over-month increase in gasoline prices since May 2022, a move sparked by Russia's invasion of Ukraine.
Overall, the research noted, gasoline's contribution to the monthly change in retail sales was 1.1 percentage points. Food and beverage spending made a marginal positive contribution to total spending in the month, and there were small negative contributions from building materials, motor vehicles, and general merchandise.
There was more bad news in the report, said Rosenberg. In real terms, retail sales fell by 0.7% month over month, its largest decline in six months. The three largest declines in real spending in the month were building materials, general merchandise and gasoline.
"The significant drop in real spending on gasoline is about as clear an example of demand destruction as you will find. Canadians reacted quickly to conserve in response to the sharp increase in gasoline prices," the research said.
"A key takeaway is that even though Canadians did spend more in the month, there were clear signs of consumers turning more cautious in response to the increase in uncertainty from the outbreak of war in the Middle East," it added.
The report points toward only limited momentum in consumer spending into Q2, according to the research. Fair warning, however, despite the news on retail sales for March, consumer activity for all of Q1 might end up looking "pretty healthy", it said, noting that on a QoQ basis, real retail sales rose at an annualized pace of +4.8% in Q1, the largest increase since 2024Q4. "This seemingly strong performance is testament to what had been signs of improving economic momentum earlier this year. It was nice while it lasted."