Coming on the heels of January’s impressive gain, retail sales took a breather in February, edging up just 0.1% month-on-month. The performance was even softer after stripping away inflation, with sales declining by 0.4% in volume terms.
Sales look to have sprang back to life in March, with Statistics Canada’s flash estimate pointing to a 1.4% monthly gain.
Regionally, sales were down in all but four provinces in February. Manitoba (+4.3%), Saskatchewan (+2.4%), and Nova Scotia bucked the trend with strong gains in sales, while Ontario churned out a modest increase (+0.3%).
Looking at the individual categories, sales of motor vehicles and parts pulled back in February (-5.1% m/m), weighing heavily on the headline print. However, receipts at gasoline stations were up both in nominal (+6.2%) and volume terms (+3.4%), lifted by higher gasoline prices and improved mobility trends.
Core sales, which exclude autos and gasoline, fared well for the second consecutive month, rising 1.4% in February, after a 3.3% gain in January.
- Sales at clothing and accessories stores led the increase in core sales, rebounding 15.1% on the month.
- Activity remained strong in some housing-related categories. Coming on the heels of 11% gain in January, sales at building materials, garden equipment and supplies rose by another 5.6% in February. Ditto for electronics and appliances stores (+1.1%), where sales increased in the past three months.
- By contrast, sales declined at furniture and home furnishings stores (-2.2%), general merchandise (-1.2%) and miscellaneous store retailers (-1.5%). Demand also appears to have cooled off a bit at health and personal care stores (-0.4%).
- E-commerce sales declined in February (-4.6%), as consumers resumed shopping at brick-and-mortar stores.
Key Implications
Following a very strong print in January, retail sales took a temporary pause in February. A large drop in motor vehicle and parts sales which accounts for more than a quarter of the retail sales was mostly to blame for the soft outturn. Core sales remained resilient for the second consecutive month. Statistics Canada preliminary estimate also points to a solid bounce back in total sales in March.
Consumer spending is expected to remain robust in the near-term, supported by easing public health restrictions, significant pent-up demand and a healthy labour market. But higher prices and interest rates will begin to weigh on household budgets in the second half of the year, prompting consumers to tighten their purse strings. Retail sales may also see some weakening as consumption continues to shift away from goods and toward services, such as travel and hospitality.
The distinction between the nominal versus real growth may become important in the coming months, with growth in nominal sales being inflated by rapidly rising consumer prices. The confluence of robust domestic demand and restricted supply due to lingering supply chain issues and tight labour market mean that prices for many categories of goods as well as services are starting show more heat. The war in Ukraine has also sent commodity prices higher, adding more fuel to the inflationary fire. These issues are unlikely to dissipate any time soon, and will keep inflation well-above the Bank of Canada 2% target this year.
