Retail sales rebounded in October, further evidence that Canada’s economy will be facing the fifth wave of COVID-19 infections with decent momentum.

Sales grew 1.6 per cent from September, to $57.6 billion, the second highest on record, Statistics Canada reported on Dec. 21. Automobile dealers led the increase, as vehicle makers had begun to resolve supply issues related to the pandemic, which helped factories keep up with demand.

Overall, seven of the 11 broad categories that Statistics Canada measured posted gains, making for a strong bounce from the previous month, when retail sales declined 0.3 per cent. On a volume basis, sales rose 0.9 per cent, compared with a 1.1-per-cent decrease in September. Core retail sales, which exclude gasoline stations and the receipts of automobile and parts dealers, rose 1.5 per cent month over the month.

Demand appears to have held up in November, as preliminary data suggest retail sales increased 1.2 per cent, Statistics Canada said.

“The consumer is ready and willing to spend,” Douglas Porter, chief economist at Bank of Montreal, said in an interview. “But we’re all holding our breath on (Omicron) to see the extent to which the economy gets closed down.”

It seems likely that sales in December and January will be affected by tighter health restrictions aimed at slowing the spread of the latest variant of COVID-19. Case counts across some provinces have more than doubled in the past week. Quebec became the first province to begin shuttering parts of the economy on Dec. 20,  closing gyms, cinemas, bars, and schools. Ontario, the most populous province, also has enacted new capacity restrictions and closure times.

The consumer is ready and willing to spend

Douglas Porter

However, if stores stay open, or if retailers manage to coax consumers to shop online, sales might hold up. The October numbers suggest that households are keen to shop. New car sales rose nearly three per cent from September, while overall sales at car and parts dealers were up 2.2 per cent.

Still, auto sales remain relatively weak, suggesting supply remains an issue. “If we compare it to two years ago or three years ago, auto sales are still very weak and it’s not because the demand isn’t there,” Porter said. “It’s because the supply isn’t there.”

The pandemic caused shortages for important inputs, especially computer chips. Supply is improving, but issues remain.

Growth in sales coincide with inflation matching a three-decade high this fall. The consumer price index rose 4.7 per cent at the beginning of the fourth quarter, a figure not seen since 1991. Inflation is predominantly about energy prices and housing costs, but goods prices are rising too. Passenger vehicle inflation hit 6.1 per cent in October, while parts, accessories and supplies rose 3.6 per cent from the year-ago month.

Purchases at general merchandise stores rose 2.8 per cent in October, and sales at sporting goods, hobby, book and music stores surged 17.5 per cent as school resumed. E-commerce sales fell 0.9 per cent in October, reflecting the shift in demand for services as vaccination rates rose.

If provincial governments enact further lockdowns, the retail sector might take a hit, but it’s shown through past waves it can weather rising case counts, especially in online sales, Porter said. The bigger worry is that restrictions will hurt gross domestic product overall, as services and travel would likely grind to a halt.

Porter expects an immediate downside risk to the GDP in the new year. Still, despite strong inflation, third-quarter GDP stood at 5.4 per cent annualized. The flash estimate for November retail sales figures were up, as was the estimate for wholesale trade sales, which climbed to 2.7 per cent.

“At least we know the economy had some momentum heading into the Omicron storm,” Porter said.

Financial Post

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