EconoFACTS

September 18, 2020 | 09:08

Canadian Retail Sales: Summer Sizzled, but will Fall Flop?

Economist

Chief Economist and Managing Director
Economics

Douglas Porter has over 30 years of experience analyzing global economies and financial markets. As Chief Econom... (Read more)

Douglas Porter , CFA

Chief Economist and Managing Director
Economics

Douglas Porter has over 30 years of experience analyzing global economies and financial markets. As Chief Econom... (Read more)

Canadian retail sales posted a moderate gain in July of 0.6%, building on the massive 22.7% snap-back in June. While the initial reaction to the figures may be one of small disappointment, as July was a touch light of expectations and June was revised down a point, there are many positives in today's results. First, arguably the most important number today was StatsCan's flash estimate for August retail sales; it sees a solid 1.1% rise for last month. Second, wholesale trade topped expectations with a big 4.3% rise in July, thus also carving out a quick V-shaped rebound over the summer. Finally, even with a slight lull in July, we would note that real retail sales outside of autos and gas were up a strong 5.2% from a year ago.

Excluding autos, retail sales dipped 0.4%. But note that the "weakness" was due to big pullbacks in two sectors that surged to unsustainable levels when things re-opened fully in much of the country in June. Building material & garden stores fell 11.6%, but are still up a solid 4.7% y/y after a June moonshot. Similarly, sporting goods, hobby & book stores retreated 8.1%, but are still a towering 11.4% above year-ago levels. Importantly, note that even with the July lull in some sectors, the volume of retail activity was still up 0.4% from the prior month. This builds in an annualized Q3 gain of more than 100% versus Q2. Yes, you read that right—even if sales volumes just stayed flat in August and September, real retail activity soared above 100% in Q3 after a 42% drop in Q2 (which was quite close to overall GDP of -38.7%). And, again, the initial estimate is that sales actually posted another decent gain in August, so the 100% estimate may be conservative.

The big gain in wholesale trade was nearly matched in volume terms (+4.2%). Wholesale activity was a tad slower to recover than retail sales, but the strong volume gain in July "builds in" a hefty Q3 advance of 95% annualized. Overall, along with earlier releases so far for July—manufacturing sales, housing, employment—it looks like the initial flash estimate for real GDP of +3.0% in the month is on track. In turn, we remain comfortable with around a 45% annualized pop for Q3 GDP (partly thanks to the gaudy gains in retail and wholesale activity noted above).

Bottom Line: It's almost comforting to see an economic report that is somewhat back to "normal" in today's moderate retail sales gain. And, we would reiterate that while the headline gain was a bit shy of expectations, the much bigger and more important picture is that retail and wholesale activity just carved out perfect V-shaped rebounds. And, that rebound was maintained in August. Now that the pent-up demand has been satisfied in many sectors, expect much more subdued (i.e., normal) figures in the months ahead in the sales data.

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Table 1 - Canada — Retail Sales

(month/month % change : s.a.)

Source: BMO Economics, Haver Analytics