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Home Contributors Fundamental Analysis Canada: Retail Sales Declined for the Second Consecutive Month in January    

Canada: Retail Sales Declined for the Second Consecutive Month in January    

  • Retail sales posted a second consecutive decline in January, falling by 1.1% m/m. While disappointing, the headline was better than Statistics Canada’s preliminary forecast, which called for a 3.3% drop. Adjusting for price effects, the volume of sales fell slightly more than the headline, down 1.6% on the month. Looking ahead, the agency’s flash estimate points to a 4.0% gain in February.
  • Gasoline sales were the source of strength in the report (+0.9%), however, the gain was entirely due to higher prices at the pump and in volume terms sales were down by 1.2%. Vehicle and parts sales edged lower (-1.0%) for the third month in a row.
  • Mandated closures of non-essential stores weighed heavily on core sales (-1.4%), which exclude the two categories mentioned above. Clothing & accessories stores led the decline, with sales falling by a massive 17.8% following a similar decline in December. Compared to a year-ago, sales of clothing & accessories were down 42.5%. Sales of furniture and home furnishings also saw a steep drop (-15.1%). Still, some retailers managed to buck the trend. Sales rose at general merchandise stores (+3.3%) and stores selling garden and building equipment (+2.6%), the latter were up 26% from the year ago. Food & beverage stores and personal care stores reported flat performances.
  • Limited in-person shopping options, gave an extra boost to online sales, which advanced by 15% in January. Compared to a year ago, online sales have more than doubled (+110%) y/y.

Key Implications

  • As expected, retail sales took another blow in January, as shoppers faced tighter restrictions and limited in-person shopping options across much of the country. Declines over the last two months left sales 4.7% below their November level, but still up 1.3% from a year ago.
  • February is shaping up to be a much better month. As we highlighted in our recent report, TD credit and debit card data show that spending staged a solid rebound as provinces began to gradually lift restrictions last month. In terms of the individual categories, as stores re-opened shoppers flocked to retailers selling household goods, such as furniture, electronics, appliances, and garden and building equipment – a trend that could stay with us for some time given the current frenzy in the housing market.
  • Not only has the pandemic created winners and losers in the retail space, it had also led to a unique environment in which Canadians have really ramped up savings. The combination of government income support measures and constrained spending due to restrictions has caused households to accumulate up to $200 billion (9% of GDP) in excess savings last year. In our latest economic forecast, we assumed that households only draw down 10% of their excess savings for consumption purposes, and consumer spending grows by roughly 5% annually in 2021 and 2022. However, if consumers choose to dip into their built-up savings to a larger extent, it could meaningfully accelerate Canada’s economic recovery.
  • All in all, the Canadian economy has shown relative resilience in the face of the second wave of the pandemic, and the recent economic re-opening ushers optimism about the days ahead. That being said, the slow pace of vaccination-to-date and the recent uptick in cases continue to pose uncertainty to consumers and businesses alike about what the next few months could hold.
TD Bank Financial Group
The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability.

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