Retail tales

Canada's retail sector bounced back strongly in May as Provinces reopened their economies, and StatsCan's preliminary estimate suggests that the retail sector may have recouped almost all of its COVID -related losses in June. Good news, but can it last?

StatsCan reports that retail sales rose 18.7 percent in May (17.8 percent in volume terms), which still left this key indicator 20 percent below its pre-COVID level.  Sales were up in every Province, led by Quebec, which has been one of the most aggressive in reopening its economy.  Almost all sub-sectors posted gains, led by auto sales. The only sub-sector to record lower sales was food, which never experienced the declines seen in other sectors in March and April. Indeed, food sales posted a record gain of 23 percent in March, spurred by a combination of restaurant closures and panic buying, so the May data reflect a return to more normal activity.

As with some other recent series, StatsCan has chosen to provide a very preliminary snapshot of how things unfolded in the most recent month. It estimates a further increase of 24.5 percent for retail sales in June. While this figure is liable to be revised, perhaps sharply, if achieved it would bring retail sales back to their pre-COVID level.

What happens next depends on a variety of factors, not least among them the pandemic. In Western provinces, which moved to reopen their economies at an early stage, there are signs of a rebound in COVID cases, although so far the numbers seem to be controllable. The most populous Province, Ontario, is reopening its economy on a region-by-region basis; any significant resurgence in the virus as that happens would seriously jeopardize the prospects for retail sales.

More positively, an under-reported factor supporting the retail sector in Canada is the continued near-closure of the border with the United States.  Many Canadians regularly shop across the border in search of a wider variety of goods and (sometimes) lower prices.  At least part of that spending must now be taking place domestically, which may help to explain why retail sales seem to be getting back to pre-COVID levels so quickly.

And then there's this surprising report that Canadians are actually feeling better about their debt levels than they were in the early days of the pandemic -- and indeed, more optimistic than they were even pre-pandemic.  This is a testament to the success of the emergency measures put together by the Federal government to protect workers from the economic impact of COVID. Fewer Canadians than before are reporting that they are close to running out of money each month, partly thanks to the government assistance and partly because spending has been curtailed willy-nilly.  Given Canadian households' proclivity to pile on debt in recent years, this has to be a welcome development; whether it translates into a longer-term change in behaviour remains to be seen.