Canadian Retail Sales (December 2020)

Ksenia Bushmeneva, Economist | 416-308-7392

Date Published: February 19, 2021

Share this:

Retail sales plunge in December as tighter restrictions take hold   

  • Retail sales posted a steep decline in December, falling by 3.4% m/m. This was the worst performance since last April and was weaker than Statistics Canada's preliminary forecast, which called for a 2.6% decline. Adjusting for price effects, the volume of sales was down 3.6%. Looking ahead to the next month, the agency's flash estimate points to a 3.3% drop in January.
  • Core sales, which exclude sales of autos, parts and gasoline, were even weaker than the headline, contracting by 4.6%. The declines were broad-based – only gasoline stations and health and personal care stores bucked the trend and posted tepid gains. Restrictions on non-essential shopping weighed heavily on clothing & accessories stores and sporting goods, books, music and hobby stores, with their sales down 17% and 22.5%, respectively. Electronics and appliances stores also posted a double-digit decline (-12.8). Even food and beverage stores saw their sales edge lower (-0.2%) in December. 
  • Sales at vehicle and parts dealers were also hit by restrictions (-1.4%), while gasoline stations posted their first gain in four months (+0.3%). However, the gain in gasoline sales was a reflection of higher prices at the pump, and in volume terms, gasoline sales were down 3.4%. 
  • Limited in-person shopping options, gave an extra boost to online sales, which advanced by 1.1% in December. Compared to a year ago, online sales were up a whopping 69%.  

Key Implications

  • Today's retail sales report was painful to read but hardly surprising. As expected, retail spending saw steep declines in December and, likely, January as more stringent government restrictions on non-essential stores took hold. Factoring in the preliminary January print, two months of declines in sales likely erased all gains attained since the end of spring lockdowns, with sales 1.2% lower than they were last February. 
  • Despite the ugly headline, brighter days are likely in store. With covid-19 cases rapidly declining, many provinces began to re-open their economies, which will lead to improved shopping traffic in the coming months. Pent-up demand and extra savings could give spending some extra vigor later this year. As we wrote in this week's report, the pandemic had created a unique environment for some Canadians to ramp up savings and reduce debt balances, particularly on credit cards and lines of credit. While lingering uncertainly, travel restrictions and the slow pace of vaccinations will likely keep households in the saving and debt-repayment mode near-term, extra savings and room on credit cards also means that households have the firepower to boost spending once restrictions are lifted.