Canadian retail sales have been on a roller coaster ride over the last number of months. Most recently, in April, Canadian retail sales plunged 5.7%, the biggest drop since the start of the pandemic. The big decline follows months of ups and down in retail spending, and shows that economic recovery, which many analysts believe will be red-hot, might actually end up being very bumpy.
What Is Happening with Retail Sales?
According to the latest data from Statistics Canada, the country’s retail sales are not doing so well. Retail sales actually jumped 3.6% in March, but that momentum failed to build. In April, Canadian retail sales tumbled 5.7% to $54.8 billion.
This represents the largest decline since April 2020, when the first wave of the coronavirus pandemic hit. The April retail sales figures were below Bay Street consensus for a 5.0% drop. And the outlook remains bleak. Statistics Canada said May retail sales most likely fell by 3.2% as the third wave of the coronavirus drags on.
The decline in April retail sales was pretty widespread, with decreases in nine of 11 subsectors. The biggest declines were in clothing stores (-31.3%) and shoe stores (-32.1%). Sales at building material and garden equipment and supplies stores fell for the first time in nine months (-10.4%). Sales at motor vehicle and parts dealers and gas stations fell for the first time in nine months.
Core sales, which exclude gas stations and motor vehicles, were down a whopping 7.6%.
Why Is Retail Sales Data Important?
Retail sales are an important economic indicator because consumer spending drives the majority of Canada’s gross domestic product (GDP), at around 56.5%. That’s not as high as it is in the U.S., where consumer spending accounts for nearly 70% of the GDP, but it’s still hugely significant.
The big question is whether or not the April retail sales data is a true indicator of where the Canadian economy is heading or if the data is being skewed too heavily by the coronavirus pandemic.
Right now, the underwhelming retail sales figures show the Bank of Canada may be a little too optimistic with its second quarter growth projections of 3.25% and full-year growth forecast of 6.5%.
Even if there is a strong rebound in June, chances are good it will not be strong enough to result in second quarter GDP growth of 3.25% and full-year GDP growth of 6.5%. This data calls into question whether or not the Bank of Canada will be able to raise interest rates in the second half of 2022.
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Canada’s erratic retail sales show the post-coronavirus pandemic recovery will be bumpy. While the long-term outlook for the Canadian economy is solid, in the near term, uneven retail sales will have a material impact on Bay Street, some sectors and industries more than others.
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