Price reductions were a key factor in the 0.9% drop in retail sales in October from September, Statistics Canada reported Thursday.

StatsCan said retail sales totalled $35.9 billion in October, as six of the eight retail sales sectors posted declines.

If price changes are factored in, retail sales in terms of volume were up 0.1%, StatsCan said.

The difference between the value and volume of sales was attributable to prices decreases for gas, passenger vehicles, women’s clothing and furniture, based on the Consumer Price Index.

The sharpest decline in October was a 2.1% drop in sales by furniture, home furnishings and electronics stores, which posted its third decline in a row.

This indicates that Canadians are cutting back on frivolous spending, but not necessary all spending, according to BMO Captial Markets economist Douglas Porter.

“There were some clear signs of initial hunkering down among consumers amid the financial market turmoil in October, but not a severe pullback,” Porter said. “Canadians were buying what they had to buy, not what they wanted to buy.”

Sales in the automotive sector recorded a 1.5% decline in October, mainly attributable to a 4.0% drop in sales by gasoline stations, their strongest decline since August 2007. The decrease in sales by new car dealers only partly offset the sales gains posted in September.

Sales by clothing and accessories, and general merchandise stores also fell by at least 1.0% in October.

Retail sales fell in six provinces in October. The sharpest decline was in Nova Scotia (-2.9%), offsetting the rise posted in September.

Sales decreased by 2.0% in Quebec and British Columbia. The decline in Quebec offset most of the rise posted in September. In British Columbia, sales reached their lowest level since April 2007, after increasing in September.

Ontario retailers posted their sharpest drop in sales since February 2008, with a decline of 0.5% in October. Sales in Ontario had remained relatively stable since the spring of 2008.

Sales in the three Prairie provinces rose in October.

In the months ahead, economists warn that retail sales will likely take a bigger hit as the recession sets in.

“With recession comes frugality, and that’s not bullish for retailers especially those selling discretionary items,” wrote CIBC World Markets economist Krishen Rangasamy.

Leading indicators

Meanwhile, the composite leading index fell by 0.7% in November, its third straight retreat and the largest since January 1991, StatsCan reported.

The decline was dominated by a large drop in the stock market and in the housing index. The other eight components were about evenly balanced between increases and decreases.

Stock market prices continued to slump in November, the culmination of their worst three-month loss on record back to 1952. Metals suffered the largest declines as global demand tumbled.

The housing index turned down by 5.9%. This reflected both a sudden retreat in existing home sales in the autumn and a drop in housing starts in November. This was the largest decline for the housing index since a similar drop in 1995.

The money supply posted the largest increase of any component. This is the most obvious difference between the current slowdown and previous episodes in 2001, 1990, and 1981, when the money supply stalled or contracted.

The leading indicator for the United States also showed large gains in the components related to monetary policy. “This reflects the substantial stimulus coming from central banks in North America, along with most major nations around the world, in response to the squeeze in credit availability,” StatsCan said.

IE