Canadian retail sales drop 26% during April’s full month lockdown

Canadian retail sales posted a historic drop in April from a full month of non-essential business closures and strict physical distancing measures, though sales rebounded in May based on preliminary data. Receipts fell 26% in April compared with the prior month, Statistics Canada said on June 19. In the first two months of the lockdowns, sales declined by more than a third when combined with the 10% drop in March.

May looks to have seen a significant rebound, with the agency’s flash estimate predicting a 19% increase. Alternative data like online job postings, mobility tracking and confidence surveys all suggest the economy is showing signs of life after plummeting in April at the height of the pandemic. That’s also in-line with the view from the Bank of Canada. Deputy Governor Larry Schembri said on June 18 that early signals suggest April was the low point for consumer spending.

Excluding auto vehicles and parts, retail sales were down 22% in April on the month. They were down in every sub-sector for the first time in 27 years. Economists in a Bloomberg survey had expected a 15% drop in April.

U.S. retail sales bounced back by record 17% in May from April’s low

U.S. retail sales bounced back in their biggest month-to-month jump ever on record in May, as COVID-19 lockdowns ended and consumers went out to spend money again. Retail sales rose by 17.7% in May, more than twice what economists were expecting, the U.S. Department of Commerce said on June 16.

Sales fell by 8.3% in March and a further 14.7% in April after the coronavirus that causes COVID-19 prompted much of the North American economy to shut down starting in the middle of March. 

But many states started reopening in May even as their COVID-19 cases continued to grow, and it seems consumers started to spend again on just about everything. Motor vehicle sales jumped 44.1%, building materials were up 10.9%, non-store sales rose 9%, and restaurant receipts surged 29.1%.

Still, the pandemic’s damage to retail sales remains severe, with purchases still down 6.1% from a year ago and almost 8% below where they were in February.

The spending seems to have spurred at least a temporary surge in rehiring. In May, employers added 2.5 million jobs. But economists are watching closely to see if the recovery is sustained or fleeting.

“This may very well be the shortest, but still deepest, recession ever,” said Jennifer Lee, a senior economist at BMO Capital Markets. But, she said, it’s “not likely that we’ll see a repeat in June as this is pent-up demand unleashed in one month.”

Online sales are booming

The changes forced by the coronavirus have aided online retailers and building materials stores and other outlets that stayed open during the outbreak. Other businesses are facing persistent financial strains.

Sales at non-store retailers, which include internet companies like Amazon and eBay, rose 9% in May after posting growth of 9.5% in April. They are up a sizable 30.8% from a year ago.

Building materials stores enjoyed a monthly gain of 10.9% last month and annualized growth of 16.4%. Other sectors in retail posted spectacular growth in May, yet still face an uncertain future given the blows they absorbed in March and April. Furniture store sales surged 90% in May, but they’re still down more than 21% on the year. This same pattern holds for restaurants, electronics stores, department stores and auto dealers.

There are winners and losers across all sectors of the economy. Macy’s CEO Jeff Gennette has said that his company’s reopened stores are regaining 50% of their typical business. Teen retailer American Eagle Outfitters is faring even better, averaging roughly 95% of its normal sales levels.

But analysts cautioned that some of the gains thus far probably reflect the impact of temporary government aid and expanded unemployment benefits in the face of a deep recession. “With fear of a second wave of infections putting limits on household activity, and stepped-up unemployment benefits, Economic Impact Payments and the small-business Paycheck Protection Program all set to expire in coming weeks, the economy’s gains remain vulnerable,” said Karl Schamotta, chief market strategist at Cambridge Global Payments.

The U.S. jobless rate is a historically high 13.3% by the government’s standard measure and an even worse 21.2% by the broadest gauge of unemployment. For now, Americans are spending disproportionately more on essentials and less on luxuries.

Retail bankruptcies

The lockdowns sent many mall-based chains further into peril. Coresight Research, a retail research firm, expects between 20,000 and 25,000 stores in the United States to close this year, about 60% of them in malls. That’s up from the firm’s previous estimate in mid-March of 15,000 closings, and it would surpass the record 9,000 store closures last year. “The retail sector was already over-stored before COVID reared its ugly head,” said Craig Johnson, president of Customer Growth Partners, a retail consultancy. “This is a forced rightsizing.”

Dollar rises after strong U.S. retail sales, Fed chief’s remarks

The dollar posted gains on June after a record increase in U.S. retail sales in May following two straight months of declines, reinforcing a growing belief that the worst may be over for the world’s largest economy. The retail sales data followed a report early this month showing that the U.S. economy created an unexpected 2.5 million jobs in May.

Federal Reserve Chair Jerome Powell, however, doused some of the rosy expectations on June 16, as he painted a rather bleak picture of the U.S. economy in the wake of the coronavirus pandemic. That did not stop the dollar from rallying, as his comments bolstered the currency’s safe-haven appeal.

In the first of two days of hearings with U.S. lawmakers, Powell said there is significant uncertainty about the timing and strength of the U.S. recovery. “Powell is sounding quite negative here. I think he’s being realistic,” said Juan Perez, currency trader at Tempus Inc in Washington. “The U.S. dollar is gaining a little bit here just because of this uncertainty that Powell mentioned. It seems like monetary officials are preparing for a much longer recession for the U.S. economy.”

His testimony came a day after the Fed said it would start buying corporate debt on June 16 as part of an already announced stimulus scheme, and launched its Main Street Lending Program for businesses. In afternoon trading, the dollar index was up 0.5% at 97.019, with the euro dropping 0.5% to $1.1262. The greenback, meanwhile, was little changed against the yen at 107.29 yen, paring early gains.

The data on June showed U.S. retail sales jumping 17.7% in May, the biggest rise since the government started tracking the series in 1992. Data for April was revised to show a record 14.7% drop in sales instead of the previously reported 16.4%. Economists polled by Reuters had forecast retail sales would rise 8% in May.

“The lockdowns ended and the 33% starting point for the personal savings rate did provide some decent dry powder for new spending,” said David Rosenberg, chief economist and strategist at Rosenberg Research in a research note. He added that with the recent spate of solid U.S. data, the U.S. economy’s real gross domestic product would see a contraction that is “something less negative.”

“I think the key will be sustainability and whether there will be follow-through into Q4. So, it all depends on what happens to the economy once the training wheels and hand-holding from the stimulus pull an exit-stage-left,” Rosenberg said.

Earlier in the session, investor sentiment improved after news reports said the Trump administration is preparing up to $1 trillion in infrastructure spending focused on transportation projects as part of its push to spur the U.S. economy back to life.

Source: Financial Post
Source: CBC
Source: Financial Post