• Canadian retail sales increased 0.4% (m/m) in January, following a revised 0.2% gain in December (previously reported as 0%).
  • Netting out price changes, the picture was softer. Retail sales volumes fell 0.3%.
  • Retail sales were only up in four of the 11 major categories. The uptick was driven by stronger sales at motor vehicle and parts dealers (+1.8%) and gasoline stations (+1.5%). Excluding these two volatile categories, retail sales were down 0.3%.
  • Regionally, sales were up in eight of the 10 provinces. Quebec (+1.7%) and Alberta (+1.6%) drove the bulk of January’s increase. Ontario’s retail sales dropped 0.8%.
  • In today’s release, Statistics Canada also provided a brief look-ahead to February: “respondent comments for February note that business activities have been impacted [by the coronavirus]”.

Key Implications

  • Like most of this week’s data releases (manufacturing sales, CPI), this backward-looking print will have little bearing on sentiment and policy implications. It does, however, provide us with further evidence that the Canadian economy was already stuck in low gear well before COVID-19 and the oil price shock.
  • With containment being the top priority now, retail sales will slow down markedly in the next few months. While some areas may potentially see increases on reported stockpiling, the combination of containment efforts and reduced consumer confidence will impact most discretionary categories. Notably lower oil prices will also impact nominal sales significantly in the months to come.
  • As a result, consumer spending and real GDP are both set to contract meaningfully in the second quarter. A rebound in consumer spending in Q3 rests on a critical assumption that containment measures work, consumer confidence picks up, and activity begins to return to normal.

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