Canada’s retail sales rise modestly in February, significant change in consumer spending patterns expected ahead

Canada’s retail sales rose at a modest pace of 0.3 percent sequentially in February after rising 0.6 percent in the prior month. The January’s print was upwardly revised from a rise of 0.4 percent to a rise of 0.6 percent. Excluding price changes, the retail sales scenario remains modest. Retail trade volumes rose 0.2 percent month-on-month.

Out of 11 major categories, retail sales rose only in 6 categories. The rise in headline figure was mainly due to stronger rise at motor vehicles and parts dealers and general merchandise stores, which recorded a rise of 1.1 percent and 1.4 percent, respectively. Sales at gasoline stations rose 0.6 percent. Meanwhile, lower sales at food and beverage stores offset the rise, falling 1 percent. Stripping the volatile autos and gasoline categories, core retail sales dropped 0.1 percent.

Region wise, sales rose in five provinces out of 10. Ontario and British Columbia led the overall rise, recording a rise of 0.7 percent and 1.2 percent, respectively. Quebec and Alberta recorded a fall of 0.4 percent each.

Before the COVID-19 world, today’s release would have been viewed as cautiously optimistic given the solid upward revisions to the prior month’s data and the positive four-month run in nominal and real retail sales growth. Since March, necessary social distancing efforts to contain COVID-19 are likely to have dealt an unprecedent blow to the sector, with several provinces adding a range of retail categories to their non-essential businesses list. The unprecedented fall in labor markets in March is expected to be a major drag on consumer confidence and spending, said TD Economics in a research report.

“Looking ahead, we expect a significant change in consumer spending patterns, with only food and beverage stores expected to record meaningful gains. On that note, Statistics Canada mentioned non-food retailing as one of the hard-hit sectors in their flash GDP estimate for March. Prompt household income support from the government will provide some respite to those most impacted by COVID-19. Looking ahead, pent-up demand may also be supportive for the sector once measures are eased. However, we also expect that some consumers will turn more cautious amid the unprecedented layoffs and notably weak macroeconomic backdrop, in turn reducing their discretionary spending in favour of savings”, added TD Economics.