Canadian Retailers Post Solid Sales in April
Canadian Retailers Post Solid Sales in April Retail sales rise 0.6% in April, up 4.2% year-over-year Ex-auto sales up a strong 1.1%
The Canadian economy may be in a funk, posting a small contraction in Q1 and likely little growth in Q2, but consumers are still ring up sales at retail outlets. After flat sales in March, which Statistics Canada largely attributed to poor weather conditions that deterred shopping, sales rebounded in April rising by 0.6%. A 1.9% monthly gain in outlays at gasoline stations, which lifted the 12-month increase to a whopping 15.5%, showed that household wallets are being hard pinched by elevated oil prices. Nevertheless, stripping out all price effects, real retail sales in April were still up a respectable 0.5% and more than 4% from a year earlier.
From a sectoral basis, weakness in the auto sector was evident. In recent years, Canadian domestic auto sales have been strong, but they are cooling down. New car sales fell 1.0% to stand 1.8% below the level in April 2007. Used car sales dropped 2.1% in April, and eked out a modest increase year-over-year.
Canadians also appear to be moderating their spending on other big-ticket items. Furniture, home appliance and electronic store sales rose 1.6% in April, but this followed two months of decline that lowered the annual growth rate to 3.7% from the almost 8% average recorded last year. Building and outdoor home supply stores also had a weak performance in April. This trend is consistent with the recent evidence of a broad-based cooling in Canadian real estate markets across the country, particularly in the west, that is likely to persist in the months ahead.
So what are the prospects for retail sales going forward. Employment growth is likely to prove minimal in the coming months, averaging a gain of about 6k net new positions a month. However, labour markets will remain tight as the national unemployment rate will only edge higher. That suggests wage growth will prove solid and above the rate of inflation, but it could slip a bit lower. Cooling real estate markets also won’t be a catalyst for strong spending on housing-related items. The Bank of Canada has signaled that interest rates are on hold and the next move for monetary policy is likely a tightening – but not for some time. The implication is that borrowing costs will hover around current levels before gradually rising next year. While that shouldn’t prove a problem for households, high debt levels may constrain growth in retail outlays. Putting all of these pieces together creates a picture of softer, but still reasonable, consumer spending ahead. Indeed, after robust growth of 5.8% in 2007, retail sales are on track for an increase of 4.6% in 2008 and close to 4% in 2009.
TD Bank Financial Group
The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability.
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