Retail Sales in Canada Rebound in October in Sign of Resilience

Canadian retail trade is set to rise in October after doing better than expected in September, when weak auto sales were partly offset by strength in the food and drink sector, Statistics Canada data indicated on November 19. In a flash estimate, Statscan forecast that retail sales would increase by 1.0% in October after falling by 0.6% in September as a global chip shortage hit the auto sector. Analysts had predicted a 1.7% drop in September.

“It’s important to note that the weakness in autos isn’t due to weakness in demand, but rather a lack of supply due to semiconductor shortages. … The picture looks much healthier than the headline suggests,” said Benjamin Reitzes, Canadian rates and macro strategist at BMO Capital Markets. “Consumers appear ready, willing, and able to spend as we head into the holiday season,” he said in a note to clients.

Sales decreased in seven of 11 subsectors, representing 63.5% of retail trade. In volume terms, sales dipped by 1.1%. But sales in food and beverage stores and the furniture subsectors both rose by 1.3%.

“While increased spending on services and the restricted supply of some goods, which is pushing prices higher, could make for a bumpy road this winter, it seems like retailing is holding up better than expected for now,” said Royce Mendes, senior economist at CIBC Capital Markets. The Canadian dollar reversed some of its losses after the retail data, but was trading down at 1.2638 per U.S. dollar, or 79.13 U.S. cents.

On a seasonally adjusted basis, retail e-commerce sales rose 5.1% in September. On an unadjusted basis, retail e-commerce sales were up 1.8% year over year to $3.2 billion in September, accounting for 5.3% of total retail trade. The share of e-commerce sales out of total retail sales increased 0.4% in September compared with August and was down 0.2% from September 2020.

Source: Bloomberg
Source: Globe and Mail
Source: Statistics Canada

Statistics Canada Says GDP Grew at 5.4% Annual Rate in Q3

The economy bounced back sharply in the third quarter of the year after taking a walloping in the preceding three-month stretch, in a demonstration of what may be in store as COVID-19 concerns wane and Canadians start spending anew. Statistics Canada said that the economy grew at an annual rate of 5.4% in the third quarter of this year as COVID-19 restrictions eased and household spending rose. The result was a rebound from a contraction in the second quarter that Statistics Canada also said was deeper than it previously reported.

Quarterly growth in household spending was one of the largest on record. Consumers spent their money at restaurants, bars, hotels and on air travel, which jumped 181.9% as more travellers took to the skies. Offsetting those soaring figures was floundering business investment and lower consumer spending on goods like cars.

TD senior economist Sri Thanabalasingam said growth in real domestic product could have been even stronger in the third quarter it not for global supply-chain issues. But celebrations were quickly grounded by severe flooding in British Columbia, and concerns about a new, possibly more transmissible variant of COVID-19.

CIBC chief economist Avery Shenfled said the Omicron variant, a potential retightening of restriction and the need for booster shots could all affect the next leg of the economic recovery, “A summer lull in COVID worries brought Canadians out to party, and their spending spree was fun while it lasted,” he wrote in a note, “but we’re facing new concerns about whether a more vaccine-resistant variant could set back the timetable for further growth.”

Statistics Canada said the third quarter ended with the economy edging up by 0.1% in September, as broad gains in service industries were offset by declines in manufacturing that was partly pulled down by a global shortage of semiconductor chips. The agency also said preliminary data suggests the economy grew by 0.8% in October to start the final quarter of the year, led by manufacturing. Statistics Canada said that with that estimate, total economic activity was about 0.5% below the pre-pandemic level recorded in February 2020.

Stephen Brown, senior Canada economist with Capital Economics, said the shortfall should be made up by the end of this year or early next. He also said the path for the economy should lead the Bank of Canada to raise its trendsetting interest rate by the middle of 2022. 

The federal government has already tightened its pandemic purse strings. In October, the Trudeau Liberals ended broad benefits to workers and businesses in favour of more targeted support outlined in a bill now before the House of Commons.

In two other reports, the PBO estimated the cost of extending pandemic sickness benefits to May would cost $373.8 million, and $554 million to add extra weeks of eligibility to the federal caregiving benefit.

Compensation of employees rose 2.9% in the third quarter, the largest increase since 2000, excluding a large uptick a year ago. Statistics Canada noted that almost half of the overall increase in wages was seen in the hospitality industry, which includes restaurants and hotels.

The extra spending outpaced the growth in disposable income, which dropped the savings rate to 11 per cent from 14 per cent in the second quarter. The savings rate is still well above pre-pandemic levels. “Households are well-prepared to deal with potential challenges ahead, and there is still plenty of gas in the tank to fuel an eventual comeback in the service sector,” wrote BMO chief economist Douglas Porter.

Source: The Star
Source: Globe and Mail
Source: Financial Post