June 23, 2021 | 09:07
Canadian Retail Sales: Spring Slump...Summer Surge?
Canadian retail sales were predictably walloped during the third-wave restrictions, but appear well primed for a rapid recovery. Sales fell even more heavily than initially estimated by StatsCan in April, plunging 5.7% (flash was -5.1%), with ex-auto sales sliding 7.2%. And, perhaps more notably, the early read on May points to another heavy decline of 3.2% from this already-weak level. While the massive swings in almost all economic data in the past year has tended to numb the senses, note that the April drop in sales is larger than anything seen in the past 30 years (aside from the wildness of 2020).
The April drop was mostly due to tough restrictions in Ontario (-13.4%) and Manitoba (-8.0%), which were two of the hardest hit provinces by the third wave. Excluding these two, the rest of the country posted a much less intense sales drop of 0.7%. The renewed drop in May likely reflects new lockdowns in some other provinces. With the country now in various stages of re-opening, we look for a hearty snap-back in sales in June and July. However, note that even with the big decline in April (and May) activity, retail sales volumes are still above pre-pandemic levels—so the rebound may not fully reverse these latest sags.
The areas of pronounced weakness were no surprise, with clothing & shoes plunging 31.4%, furniture falling 14.4% and general merchandise off 8.1%. One small surprise was that the volume of sales fell "just" 5.6% (i.e.., slightly less bad than the headline). With consumer prices forging higher in the month, it was anticipated that the real drop would be even worse—small mercies.
Still, the heavy-duty drop in April sales volumes and the early weak read in May all but locks in a) a big decline in April GDP (around -1%) and b) continued softness in May. This combination suggests that for all of Q2, GDP will struggle to stay flat (our call), let alone reach the BoC's latest projection of 3.5% growth for the quarter. Nonetheless, we remain optimistic that activity will bounce back in Q3, possibly close to a 10% annualized pace.
Bottom Line: While today's downbeat report is a look deep into the rear-view mirror, it reveals the full extent of the third-wave restrictions—with retail at the forefront of the economic pain. Even so, the weakness is no shock, and provided the further fall in May doesn't spill more broadly into the rest of the economy, we are maintaining our call for flat GDP in Q2 and a 9.5% spike in Q3 (and +6% for the full year).