Retail rebound

It's a milestone of sorts -- this morning Statistics Canada reported that retail sales rose 23.7 percent in June, a result which brought the data series above its February (pre-pandemic) level. It's only 1.3 percent higher, but even so, this is the first major data series to return to levels seen before the pandemic hit.

All the sub-sectors tracked by StatsCan moved higher in the month, with particularly strong gains in auto sales and clothing stores.  With inflation at a very low level, the real gain in retail sales was very close to the nominal number, at 22.9 percent.  Regionally, the strongest gain in the month was seen in Ontario, which has been much more cautious in ending its lockdowns than most other Provinces.

Even with the rebound in June, retail data for the second quarter as a whole look dire, falling 13.3 percent in nominal terms, 12.4 percent in real terms. Retailers can be forgiven if their applause for today's data is somewhat muted, as it very much remains to be seen whether the sharp declines earlier in the year (mainly in March and April) can ever be recovered, or are simply gone forever.

The unexpectedly sharp rebound in the retail sales is a tribute to the success of the Federal Government in cushioning households against the immediate economic impact of the virus lockdowns. The programs hastily rushed out back in March may not have been perfect in either design or execution, but today's data clearly show that they have had the desired effect. 

This week the Government announced that the centerpiece of its relief efforts, the Canada Emergency Response Benefit or CERB, will be extended to the end of September, at which point recipients will be transitioned over into a revised version of the pre-existing Employment Insurance (EI) scheme. This support of household incomes should ensure that retail sales can stay close to the levels seen in June, but further strong gains are unlikely until unemployment returns much closer to its per-pandemic level.   

With Chrystia Freeland now in place as Canada's new Finance Minister and Justin Trudeau looking to "reset" his government in the wake of recent scandals, attention is increasingly turning to the policies needed to guide the economy back to full recovery. Trudeau is reportedly looking at a radical restructuring, with a full slate of "green" policies, guaranteed annual income and so on. 

At the same time, voices on the right of the political spectrum are becoming increasingly anxious, and even angry, about the burden that all the emergency spending is supposedly leaving for future generations of taxpayers. It will be interesting to see how the new Federal Tory leader, to be announced this Sunday, positions himself or herself on this issue.  Imposition of fiscal austerity with the aim of avoiding a "debt crisis" will all but guarantee that the economy remains in the hole for years to come.