EconoFACTS

August 21, 2020 | 09:07

Canadian Retail Sales: V-Shaped Recovery!

Economist

Director, Canadian Rates & Macro Strategist
Fixed Income Strategy

Benjamin has been with the Bank of Montreal for over a decade. He is responsible for the Canadian macro-economic... (Read more)

Benjamin Reitzes

Director, Canadian Rates & Macro Strategist
Fixed Income Strategy

Benjamin has been with the Bank of Montreal for over a decade. He is responsible for the Canadian macro-economic... (Read more)

Canadian retail sales surged 23.7% in June, coming up a bit shy of expectations, but the prior month was revised from +18.7% to +21.2%. That left the level of sales 1.3% ABOVE February levels, completing the fabled V-shaped recovery. Hard to believe anyone would have expected this just a few months ago. Indeed, those with a bearish bent will no doubt go silent, perhaps going into hibernation for the time being.

As expected, strength was across the board, with clothing (+142%), furniture/home furnishings (+71%), sporting goods (+65%) and autos (+53%) leading the way. Note that auto sales recovered further in July, and so will support next month's report as well. On that note, Statcan is estimating that July retail sales rose another 0.7%. While that might seem disappointing, it's anything but. With retail activity already above pre-COVID levels, further gains will be much more measured (or more normal if you will).

Regionally, every province saw a double-digit monthly increase, led by Ontario (+33.8%) with Toronto moving to stage 3 providing a big lift. Quebec (+23.5%) was solid as well, boosted by a big gain in Montreal. Nationally, sales are now up 3.8% y/y, impressive. Even excluding online sales, retail activity is still up 2.5% y/y. Note that sales are up versus a year ago in every province, though Ontario is lagging at just +1.8% y/y. That's because Toronto is still down 7.6% y/y, suggesting there's still notable upside there.

Retail volumes rose 22.9%, which keeps our call for June GDP at a solid +6% with upside risk, above Statcan's flash estimate of 5%. For all of Q2, retail volumes were down 41% annualized (right in line with our call for a 40% a.r. drop in Q2 GDP). However, the strong end to the quarter sets Q3 up for a HUGE gain. Even if July through September are flat, retail volumes will be up about 110% annualized. Don't be shocked if the rest of Bay street continues moving toward our above consensus call for Q3 GDP at +42% a.r....which itself is looking like it has upside.

A separate report this morning showed investment in building construction rose 12% in June, building on May's 62.2% surge. And, the new home price index jumped 0.4% or 1.7% y/y, as the housing sector continues to bounce back with gusto.

Key Takeaway: It's a V-shaped recovery for retail sales despite all the doom and gloom in recent months. Still, many sectors of the economy continue to struggle with the pandemic. Overall, the June economic data were stellar across the board, supporting our expectations for a strong June GDP report, and an excellent jump off point for Q3.

Table 1 - Canada — Retail Sales

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

Source: BMO Economics, Haver Analytics