June 15, 2009
Economy at a Glance — June 16, 2009
The retail sales decline stabilizes but CanaData’s retail construction forecast is marked down
Prepared by Alex Carrick, Chief Economist, CanaData
According to Statistics Canada, total retail sales nationally in March 2009 advanced 0.3% on a month-to-month basis, but fell back 4.8% year over year. The “smoothed” (i.e., three-month moving average) change was +0.8% month to month but -5.2% year over year. The latest Canadian and U.S. retail sales figures have flattened out. For Canada, this is taking place at about -5.0% year over year. In the U.S., it is occurring at -10.0%.
Current-dollar retail sales in Canada are now 6% below their September 2008 peak. In the final quarter of last year, the dramatic drop in stock market prices affected the buying confidence of consumers. Pension and mutual fund holdings fell significantly in value and it has been only recently that some recovery has taken place. The recession appears to be loosening its grip, but expect many more months of only tentative steps forward, with the occasional setback that will obscure the amount of progress that is being made.
Gainers and Losers in Retail Sales
A main contributing factor to improved retail trade in the latest month was new auto sales. Current dollar new motor vehicle sales were +3.6% in March versus February. Statistics Canada’s New Motor Vehicle Sales report says that unit sales of new cars rose 6.3% month-to-month in March. The +3.6% versus +6.3% difference was due to price drops. Large rebates have been a magnet attracting buyers to showrooms. Keep in mind, that on a year-over-year basis, auto-related retail sales are still depressed, at -17.6%.
Retail sales have also been strong at food and beverage stores (+7.1% year over year), where price is again playing a role. The food price sub-category in the Consumer Price Index has risen 7.0% year over year. Some component items – fruits and vegetables – were influenced by the earlier drop in value of the Canadian dollar. Of late, however, the loonie has been on an upward march, which points to a moderation in food prices ahead.
Furniture, home furnishing and electronic store sales are weak (-7.2% year over year). Besides cuts in discretionary spending due to the uncertain jobs outlook, this retail sector is being affected by the drop-off in housing starts. The most dramatic declines in homebuilding activity are occurring in western-most Canada, especially Alberta and B.C.
Retail Trade Regionally
The retail trade numbers reveal much about regional activity in the country. Both month-to-month and year-over-year, Newfoundland/Labrador and Québec are the provincial leaders. The former recorded a retail sales gain of +1.5% in April versus March and +2.0% versus April of last year. The latter recorded increases of +2.0% month to month and +1.6% year over year. Both provinces are weathering the recession better than most.
The weakest retail sales performances are being recorded in Alberta and British Columbia. Alberta’s March 2009 retail sales were -1.8% versus February and -12.2% versus March 2008. B.C.’s March retail sales were -1.4% versus the month before and -11.3% when compared with a year ago. The switchover from a raw materials sector boom to a bust, on account of the commodity price drop since last July, is the primary reason.
However, there are indications that commodity prices are starting to revive. The cost of energy has begun to move up again. The global price of oil was as low as $34 USD in February, but now stands above $60. When the per-barrel price passes a threshold figure of $80, there is likely to be a pick-up in talk about a revival in Oil Sands expansion plans.
CanaData’s Retail Construction Forecast
CanaData is now expecting the square footage of retail and mall construction starts to be 6.8 million in 2009. This will compare with 11.9 million in 2008 and the most recent cyclical peak of 18.6 million in 2007. The last time this category of construction had starts almost as low as now expected in 2009 was in 1993, at 7.2 million square feet. Retail starts did not fall to nearly the same degree in the slow-economy days of 2002.
Because consumption is such a big part of the economy, retail capital spending should be among the forerunners in privately-funded construction once the turnaround is firmly underway. But there is a caveat. Employment growth is a driver of retail spending and it is a lagging indicator when it comes to recovery in the overall economy.
For more articles by Alex Carrick on the Canadian and U.S. economies, visit his blog and Market Insights.
