- Retail sales posted a second consecutive decline in January, falling by 1.1% m/m. While disappointing, the headline was better than Statistics Canada’s preliminary forecast, which called for a 3.3% drop. Adjusting for price effects, the volume of sales fell slightly more than the headline, down 1.6% on the month. Looking ahead, the agency’s flash estimate points to a 4.0% gain in February.
- Gasoline sales were the source of strength in the report (+0.9%), however, the gain was entirely due to higher prices at the pump and in volume terms sales were down by 1.2%. Vehicle and parts sales edged lower (-1.0%) for the third month in a row.
- Mandated closures of non-essential stores weighed heavily on core sales (-1.4%), which exclude the two categories mentioned above. Clothing & accessories stores led the decline, with sales falling by a massive 17.8% following a similar decline in December. Compared to a year-ago, sales of clothing & accessories were down 42.5%. Sales of furniture and home furnishings also saw a steep drop (-15.1%). Still, some retailers managed to buck the trend. Sales rose at general merchandise stores (+3.3%) and stores selling garden and building equipment (+2.6%), the latter were up 26% from the year ago. Food & beverage stores and personal care stores reported flat performances.
- Limited in-person shopping options, gave an extra boost to online sales, which advanced by 15% in January. Compared to a year ago, online sales have more than doubled (+110%) y/y.
Key Implications
- As expected, retail sales took another blow in January, as shoppers faced tighter restrictions and limited in-person shopping options across much of the country. Declines over the last two months left sales 4.7% below their November level, but still up 1.3% from a year ago.
- February is shaping up to be a much better month. As we highlighted in our recent report, TD credit and debit card data show that spending staged a solid rebound as provinces began to gradually lift restrictions last month. In terms of the individual categories, as stores re-opened shoppers flocked to retailers selling household goods, such as furniture, electronics, appliances, and garden and building equipment – a trend that could stay with us for some time given the current frenzy in the housing market.
- Not only has the pandemic created winners and losers in the retail space, it had also led to a unique environment in which Canadians have really ramped up savings. The combination of government income support measures and constrained spending due to restrictions has caused households to accumulate up to $200 billion (9% of GDP) in excess savings last year. In our latest economic forecast, we assumed that households only draw down 10% of their excess savings for consumption purposes, and consumer spending grows by roughly 5% annually in 2021 and 2022. However, if consumers choose to dip into their built-up savings to a larger extent, it could meaningfully accelerate Canada’s economic recovery.
- All in all, the Canadian economy has shown relative resilience in the face of the second wave of the pandemic, and the recent economic re-opening ushers optimism about the days ahead. That being said, the slow pace of vaccination-to-date and the recent uptick in cases continue to pose uncertainty to consumers and businesses alike about what the next few months could hold.
