Canadian Retail Sales (July 2020)

Retail sales continued to advance in July, but gains are slowing 

• Canadian retail sales rose 0.6% month-on-month in July, marking a third consecutive monthly increase. This brought sales 2.6% above their year-ago level. July's print was closely in line with Statistics Canada's preliminary forecast for a 0.7% increase. Looking ahead, Statistics Canada's flash estimate points to a 1.1% gain in August. 
• The increase in sales was mostly a volumes story. Netting out prices, volumes were up by 0.4% on the month. 
• The gain was largely due to stronger sales of gasoline (+6.1%) and cars and parts (+3.3%). Core sales, which exclude those two categories, declined by 1.2% on the month. About half of the major categories posted declines in July, with the largest drops seen in building materials & garden equipment (-11.6%) and sporting goods, hobby and book stores (-8.8%). Core numbers were also pulled lower by reduced sales at food & beverage stores (-2.1%).   
• By contrast, sales of furniture and clothing continued to rise, advancing by 5% and 11.2% respectively. However, this still marks a significant deceleration relative to the double and triple digit growth rates seen earlier in the recovery. 
• Online sales continued to decline (-8.1%) as more shoppers returned to the brick and mortar stores. Nonetheless, sales in this category were still up 63.2% on a year-over-year basis.  
• Sales rose in half of the provinces. Atlantic provinces saw a pullback in sales, with declines ranging from 7.3% in PEI to 0.1% in New Brunswick. By contrast, aside from Saskatchewan, sales posted decent gains in all Western provinces, led by a 2.1% increase in British Columbia. Gains were relatively muted on the month in both Quebec (+0.1%) and Ontario (+0.3%), but sales were up 4.9% in Quebec and flat in Ontario on a year-over-year basis. For more information on how provincial recoveries are progressing, please see our latest Provincial Economic Forecast.  

Key Implications

• After rising by leaps and bounds in the previous two months, retail sales rose at a more modest pace in July. This is not entirely unexpected as the initial phase of a brisk rebound due to re-opening and pent-up demand gave way to a more measured and uneven recuperation phase. 
• At this point in the recovery, all but two categories of goods – sales of gasoline and clothing – have risen above their year-ago level. Regionally as well, sales were above their year-ago levels in all but two provinces (PEI and Nova Scotia). 
• The continued federal government income support programs and low interest rates will remain supportive for consumer spending. However, there are also significant headwinds, such as the still-high level of unemployment, uncertainty with respect to deferral programs, and rising COVID-19 cases. With the recovery in sales now fully complete, the way forward may be more challenging.    

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