Lower-than-usual holiday spending caused retail sales to fall by more than 3% m/m in December and, amid the latest lockdowns, the preliminary estimate shows sales fell by almost as much again in January. As non-essential stores are now beginning to re-open, retail sales should start to rebound this month.
Retail sales should start rising again this month
- Lower-than-usual holiday spending caused retail sales to fall by more than 3% m/m in December and, amid the latest lockdowns, the preliminary estimate shows sales fell by almost as much again in January. As non-essential stores are now beginning to re-open, retail sales should start to rebound this month.
- The 3.4% m/m fall in retail sales December was worse than the preliminary estimate that sales fell by 2.6%, which probably reflects the fact that the coronavirus restrictions were tightened over the month. The overall decline was mainly due to lower-than-usual holiday-related spending, with sporting good, hobby & book sales plunging by 23% m/m, clothing sales by 17% m/m, and electronic & appliance sales by 13% m/m.
- Developments elsewhere were also weak. Motor vehicle sales fell by 1.4% m/m and building material & garden equipment sales declined by 2.3%, although the latter remained 20% up in year-over-year terms thanks to the ongoing strength of the housing market and strong demand for home renovations.
- Gasoline sales edged up by 0.3% m/m, but that was entirely due to higher prices, with sales volumes down 3.4% m/m. Despite the lockdowns, Stats Can reported that online sales rose by a relatively small 1.1% m/m, although the small size of this rise may be because the Canadian retail sales data do a poor job at capturing online sales.
- Despite the 3.6% m/m fall in December, retail sales volumes still increased by 3.2% annualised over the fourth quarter. Growth will probably be negative in the first quarter, however, as Stats Can said its preliminary estimate points to a further fall in retail sales of 3.3% m/m in January.
- The better news is that consumer confidence has held up despite the latest lockdowns and is currently close to its pre-pandemic level. (See Chart 1.) As most non-essential stores have already opened or will soon do so, retail sales should start rising again this month. Overall household spending will still remain relatively weak given the ongoing restrictions on services but, as the vaccination process ramps up, we expect total consumption to rebound strongly later this year. (See here.)
Chart 1: Consumer Confidence & Retail Sales
Source: Bloomberg, Nanos, Refinitiv
Table: Retail Sales
Ex. Autos & Gasoline
Ex. Food & Gasoline
Stephen Brown, Senior Canada Economist, +1 416 874 0514, firstname.lastname@example.org