(April 24 – 12:30 ET) – Canada’s retail sales numbers for February came in as expected this morning, confirming that the economy is slowing.

February retail sales were reported down 0.3%, after strong results in January and December. A 3.5% drop in auto sales accounted for much of the weakness in the month. Clothing and furniture sales dropped as well.

“After a couple of hot months, we may now be seeing the first signs of fatigue in consumer spending,” says CIBC World Markets. “This leaves the year-over-year rate at a still respectable 4.9%, but a softer tone to labour markets and concerns regarding the vibrancy of a second half recovery should further dampen consumer enthusiasm in the months ahead.”

BMO Nesbitt Burns Inc. says these numbers foretell a weak GDP report for February. “The decline in real retail trade follows earlier reports of a drop in employment, a sharp fall in exports, and declines in manufacturing shipments and wholesale trade. Accordingly, it now appears that GDP fell 0.3%-to-0.4% in the month, reversing the strong start to the year. For the first quarter as a whole, GDP growth is now expected to clock in at a lacklustre pace of just over 1%. Growth is likely to slow further in Q2.”

CIBC warns that, “February’s retail weakness could be just the tip of the iceberg. Employment growth has ground to a halt and mounting layoff notices point to additional labour market weakness ahead. Add to that an equity market that is still underwater to the tune of 10% this year, and it is reasonable to expect a more cautious consumer in the coming months.” It also sees a 0.3% decline in GDP for February.

“A contraction in February GDP and anticipated softness in April payrolls will likely convince many market pundits that aggressive Bank of Canada easing is needed come May 29,” concludes CIBC.