Retail Volumes Fall as Bumpy Ride Continues

  • Retail sales inched up 0.1 per cent month-over-month (m/m) in February, after rising by 3.3 per cent in January. In volume terms, however, sales decreased by 0.4 per cent.
  • Statistics Canada’s flash estimate for March suggests that sales increased by 1.4 per cent. However, this preliminary estimate is based on responses from 37 per cent of the surveyed companies, so this figure will likely change.
  • Retail sales were up in 4 of 10 provinces. Manitoba contributed the most to this month’s increase (+5.1 per cent). Meanwhile, Newfoundland and Labrador (-7.8 per cent) saw the steepest decline in sales.
  • Sales at gasoline stations increased by 6.2 per cent in February, owing to the steep rise in gasoline prices during the month. At the same time, sales at motor vehicle and parts dealers fell by 5.1 per cent, their first contraction since last September.
  • Core sales (excluding gasoline and motor vehicles) increased by 1.4 per cent. Sales rose in 6 of 11 subsectors in February. Clothing stores (+15.1 per cent) continued their resurgence, while building materials (+5.6 per cent) also posted a sizable gain.

Key Insights:

  • As restrictions loosened in February, consumers had more options to spend their savings on, and naturally redirected some of their spending from goods to services.
  • Another issue was at play, however, as consumer prices continued to rise at a record pace in February. That hurt spending on many discretionary goods and pushed sales volumes downward. In addition, higher prices have likely changed spending patterns, and we think consumers are opting for more affordable grocery items in the face of price hikes.
  • Retail sales have also been negatively impacted by uncertainty around the cost of living. Although the Bank of Canada hiked its overnight rate by 0.5 per cent earlier this month, surging prices stemming from the pandemic’s fallout and Russia’s invasion of Ukraine may not be easily tempered by higher interest rates. This might encourage consumers to increase their precautionary savings until prices show greater stability.
  • Our view is that growth in retail sales will be modest throughout the remainder of 2022. The year is shaping up to be the least stringent in terms of public health restrictions since 2019, encouraging consumers to spend on leisure activities such as travel and entertainment. And with interest rates on the rise to tackle sky-high inflation, households will have to think more carefully before financing big-ticket items.