Canadian Retail Sales (October 2020)

Retail sales extend their gains in October 

• Canadian retail sales edged higher in October, gaining 0.4% m/m – better than the preliminary forecast which called for a flat reading. September's gain was also revised higher to 1.9% up from 1.1% reported originally. Taking together with today's result, this leaves sales up 7.5% from the year-ago level. Looking ahead, the agency's flash estimate points to a flat reading in November.
• Some of October's gain was due to higher prices. Adjusting for price effects, the improvement was more muted with the volume of sales up just 0.2%.
• Performance was also uneven across the categories, with just about half of the categories posting increases. Motor vehicle and parts dealers were one of them with sales rising by 1.5% on the month. Being the largest category of retail spending it did much of the heavy lifting. By contrast, spending on gas was down on the month (-2.7%), declining for the first time in six months on account of lower volumes. 
• Growth in core sales, which exclude the two above-mentioned categories, also ticked up on the month (+0.3% m/m).
• Looking at the individual components, the gains came primarily from higher sales at furniture and home furnishing stores (+6.6%), building materials and garden equipment (+2.9%), and at sporting goods, hobby and book stores, where sales surged by 11.8%, rebounding after three months of declines.
• On the other hand, sales were lower at food & beverage (-1.5%), clothing and accessories (-2.1%), general merchandise (-0.7%) and electronic and appliance (-0.6%) stores. Sales at clothing stores remain 12% below their year-ago level.
• Following a strong gain in September, online sales pulled back by 5% in October. Compared to a year ago, online sales were still up a whopping 68.7%.
• Regionally, sales were higher in seven out of ten provinces. Gains were quite modest in Quebec (+0.2%) and PEI (0.6%), but most other provinces posted healthy gains, ranging from 1.1% in Alberta to 2.1% in British Columbia. On the other hand, retail activity has pulled back in Newfoundland & Labrador (-0.4%), New Brunswick (-4.3%) and Ontario (-0.4%). In Ontario sales declined for the first time since April amid re-introduction of some restrictions related to rising COVID-19 cases. The GTA was harder-hit (both by the virus and restrictions), as a result, sales were down 1.2% on the month. 

Key Implications

• Today's release surprised to the upside, with positive growth in October as well as an upward revision to an already-strong showing in September. That being said, this was likely the last bout of good news for some time. With COVID-19 cases remaining high or increasing across much of the country and restrictions intensifying, things will likely get worse before they get better. 
• Indeed, there were already signs of this in October: spending on gasoline was down and sales declined in Ontario amid tighter restrictions. Looking ahead to November, vehicle sales are estimated to have declined by 10.4% on the month and the Google mobility data shows a pullback in travel to retail locations. 
• Just like in other parts of the economy, the pandemic is creating winners and loser as it reshapes the retail landscape. With spending on services out of reach, consumers spent more on goods this year. This has contributed to solid retail sales growth over the last several months. This trend will likely begin to unravel next year as service spending rebounds. But it will not happen until restrictions ease and the vaccines becomes more widely available, which we believe will not be the case until the second quarter.    

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