Retail Sales Hold Steady in March as Price Growth Masks Falling Retail Volumes

• In March, retail sales were largely unchanged on the previous month. However, in volume terms, sales decreased by 1.0 per cent with higher selling prices offsetting the fall in volumes sold.
• The flash estimate from Statistics Canada indicates a 0.8 per cent increase in April. However, the response rate for this survey was well below the previous 12-month average, indicating that the flash estimate is likely to change.
• Across Canada retail sales rose in 4 of 10 provinces. There was notable growth in Alberta (+1.8 per cent) with more modest gains recorded in Ontario, Manitoba and Newfoundland and Labrador. Meanwhile the largest provincial declines were recorded in Nova Scotia (-1.8 per cent) and Saskatchewan (-1.6 per cent).
• As energy prices continue to climb, gasoline sales increased by 7.4 per cent. Gains in other retail subsectors were negated by a 6.4 per cent decline in sales at motor vehicles and parts dealers. The subsector continues to be hampered by a semiconductor shortage and faces the prospect of lower demand as restrictions are lifted.
• Core sales (excluding gasoline stations and motor vehicle and parts dealers) increased by 1.5 per cent. Sales rose in 10 of 11 subsectors with growth most pronounced in building material and garden equipment and supplies dealers (+3.7 per cent).

Insights

As restrictions were lifted spending patterns continued to adjust. Unencumbered by restrictions consumers are seizing the opportunity to redirect spending towards services including hospitality, recreation and travel.

The rising cost of living will force households to devote a higher share of expenditure towards essential items such as energy and food. Household savings rose during the pandemic and remain elevated, yet uncertainty surrounding the near-term economic outlook is weakening confidence among consumers which is likely to lower the appetite for discretionary spending.

The recovery of the labour market will support an increase in nominal wages. This will support household finances, an important determinant of retail spending. However, rising interest rates are an increasing burden for indebted households and are likely to disincentivize purchases of big-ticket items that require financing.