Canada’s Retail Sales Fell 3.4% in December

Canadian retail sales in December posted their largest decline since the low of April as provinces tightened restrictions in response to a rise in COVID-19 cases, taking a bite out of the normally busy holiday shopping season. On February 19, Statistics Canada said retail sales fell 3.4% to $53.4 billion in December as sales fell in nine out of 11 sub-sectors. 

“The declines came as additional public health restrictions were necessary in many parts of the country during the worst of the second virus wave in Canada,” CIBC senior economist Royce Mendes wrote in a report. “While the widely anticipated economic recovery in this country will be led by household spending, that’s unlikely to gain any real traction until at least the spring.”

The average economist estimate for December had been for a drop of 2.5% for retail sales. A resurgence of COVID-19 cases in Canada prompted provincial governments to reintroduce physical distancing measures late last year that hurt the retail sector.

Core retail sales — which exclude sales by gasoline stations and motor vehicle and parts dealers — fell 4.6% in December on lower sales at general merchandise stores and clothing and clothing accessories stores, as well as sporting goods, hobby, book and music stores.

Sales at general merchandise stores fell 7.6%, while clothing and clothing accessories stores dropped 17% in December to post their largest decline for since April. Sales at sporting goods, hobby, book and music stores dropped 22.5% for the month.

Electronics and appliance stores saw sales drop 12.8% and furniture and home furnishings stores reported a 7% move lower, but those declines followed increases in November, helped by Black Friday sales and an earlier Christmas spending season.

E-commerce accounted for 7.8% of total retail trade in December—the largest share since May. The rise in e-commerce sales coincided with an uptick in the number of retailers reporting shutdowns in December. When adjusted for basic seasonal effects, retail e-commerce sales increased 1.1%.

Retail sales in volume terms fell 3.6% in December. On a quarterly basis, retail sales were up 1.2% in the fourth quarter compared with the third quarter of 2020, while retail sales in volume terms increased 0.8%. Given the rapidly evolving economic situation, Statistics Canada is providing an advance estimate of retail sales, which suggests that sales declined 3.3% in January. Owing to its preliminary nature, this figure will be revised.

Retail sales in 2020

Canadian retailers finished 2020 with $606 billion in sales, down 1.4% from 2019. This was the largest annual decline since the 2009 recession, as the onset of COVID-19 in the first quarter of 2020 and related health measures led to the temporary closure of many non-essential brick-and-mortar retailers across the country.,Limitations on in-person shopping and gatherings also contributed to a 1.7% volume decline in sales, also the largest drop since 2009.

Ontario (-3.4%) and Alberta (-2.5%) led the national decline in retail sales, with the provinces of Nova Scotia (-2.0%), Quebec (-0.4%) and Saskatchewan (-1.1%) also posting declines. In contrast, sales in British Columbia increased 2.3%. Sales were also up in Manitoba (+0.6%), New Brunswick (+1.2%), Newfoundland and Labrador (+1.2%), and Prince Edward Island (+1.5%).

In the spring of 2020, temporary store closures and physical distancing measures made online shopping a more attractive and accessible. Many brick-and-mortar retailers were quick to adopt and promote online sales. As a result, retail e-commerce sales increased 70.5% in 2020. The share of e-commerce sales out of total retail trade reached a record-high 9.8% in April. Retail e-commerce sales accounted for 5.9% of total retail sales in 2020, up from 3.5% in 2019. 

In 2020, core retail sales rose at over twice the pace (+4.5%) compared with 2019 (+2.1%), with food and beverage stores, general merchandise stores, and building material and garden equipment and supplies dealers leading the gain. Sales declined at clothing and clothing accessories stores.

Sales at supermarkets and other grocery stores—deemed essential at the start of the pandemic—increased 11.5% in 2020. Higher prices also contributed to the sales increase, with prices for fresh vegetables and meat products up compared with 2019. Sales at general merchandise stores, many of which were deemed essential, increased 7.2% in 2020.

With consumers spending a lot more time at home, sales at building material and garden equipment and supplies dealers increased 11.4% in 2020. Growth in this sub-sector was largely attributable to increased spending on home improvement goods as purchases of hardware, tools, and renovation and lawn and garden products remained elevated beyond the summer months. Higher prices of lumber and household equipment also contributed to the year-over-year increase in 2020.

Source: Statistics Canada
Source: Globe and Mail
Source: Toronto Star

U.S. Retail Sales Rebound Strongly in January Amid Additional Stimulus

U.S. retail sales rebounded sharply in January after households received additional pandemic relief money from the government, suggesting a pick-up in economic activity after being restrained by a fresh wave of COVID-19 infections late in 2020. The largest gain in retail sales in seven months reported by the Commerce Department was across the board, and ended three straight monthly decreases. The acceleration in activity at the start of 2021 was evident in other data showing strong growth in production and prices at factories last month.

Still, the solid economic data did not argue against President Joe Biden’s $1.9 trillion recovery plan. Millions of Americans remain unemployed. Though COVID-19 infection and hospitalization rates have declined, new strains of the virus pose a risk to the economy fully reopening.

“The economy picked up steam in January and inflation came along for the ride,” said Joel Naroff, chief economist at Naroff Economics in Holland, Pennsylvania. “Since President Biden is intent on getting a major bill through, look for that to happen and for government money to continue to get into the hands of households and businesses.”

Retail sales surged by a seasonally adjusted 5.3% last month after decreasing 1.0% in December. Economists polled by Reuters had forecast sales increasing 1.1% in January.

Retail sales increased 7.4% from a year ago. Receipts at electronics and appliance stores powered ahead 14.7% and sales at furniture stores surged 12.0%. Receipts at food and beverage stores rose solidly, as did those at building material stores. Online retail sales jumped 11.0% after dropping 7.3% in December.

The government approved another coronavirus rescue package worth nearly $900 billion at the end of December, which included $600 checks to mostly low-income and some middle-income Americans. The bulk of the money was disbursed in early January, which supported discretionary spending.

The package also extended a government-funded weekly unemployment subsidy as well as benefits for millions of people who do not qualify for state unemployment programs as well as those who have exhausted their six months of eligibility. These benefits are set to expire in mid-March.

As with the previous stimulus checks, consumers saved a big chunk of the latest payouts. “Less than a quarter of the stimulus check funds were quickly spent at retailers,” said Michael Feroli, chief U.S. economist at JPMorgan in New York. “We estimate that the personal saving rate moved up to around 20% last month.”

Some of the sharp rebound was technical. The model used by the government to strip out seasonal fluctuations from the data typically anticipates a bigger post-holiday season drop in retail sales in January. The drop in unadjusted sales was the smallest since 1992, contributing to the big rise in the seasonally adjusted retail sales.

Excluding automobiles, gasoline, building materials and food services, retail sales jumped 6.0% last month after decreasing 2.4% in December. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

U.S. stocks fell. The dollar rose against a basket of currencies. U.S. Treasury prices were higher.

Inflation Building Up

Further gains in sales are expected in the months ahead. The Biden administration’s recovery plan, under consideration in the U.S. Congress, will include an additional $1,400 check to households. The distribution of vaccines is improving, which should allow more restaurants and other consumer-facing businesses to reopen in the spring. Americans are sitting on $2.38 trillion in savings, which is expected could unleash pent-up demand for services like air travel and hotel accommodation, hardest hit by the pandemic.

In a separate report on February 16, the Federal Reserve said manufacturing production rose 1.0% last month after gaining 0.9% in December. The ninth straight monthly advance in factory production was despite a shortage of semiconductors weighing on the output of motor vehicles. Solid manufacturing and robust core retail sales left economists to anticipate first-quarter GDP growth well above the 4.0% annualized rate logged in the fourth quarter.

Firming economic activity is starting to boost inflation. In a third report, the Labor Department said its producer price index for final demand jumped 1.3% in January, the biggest gain since December 2009. That followed a 0.3% rise in December.

Inflation is being watched amid concerns from some quarters that Biden’s recovery plan could cause the economy to overheat, though much will depend on the labor market. “We do not yet have a tight labor market,” said Chris Low, chief economist at FHN Financial in New York. “Not even close.”

Source: Globe and Mail
Source: Reuters