OTTAWA: By almost equal measure, Canada’s retail sector has been both good and not-so-good in recent months. Now, it appears shoppers are back in a good mood.
Consumers rebooted their spending at the start of 2016, making up for the 2.1-per-cent loss in retail purchases in December with a matching increase in buying during January — a positive sign that shoppers are helping to get the overall economy on track for what could be healthy first-quarter growth.
In fact, the 2.1-per-cent overall rebound in January retail sales marked the single-strongest growth pace since March 2010, when it reached 2.6 per cent — surprising given that most economists had forecast a gain of just 0.6 per cent for the month.
The biggest retail gains in January came in the auto sector, where vehicle and parts dealers saw a 4.8-per-cent jump in sales — a turnaround from a 3.1-per-cent decline in December, but still managing increases in three of the past four months, according to a Statistics Canada report released Friday.
“Traditionally, the winter months are challenging months on which to base predictions for the entire year,” said Michael Hatch, chief economist at the Canadian Automobile Dealers Association.
“They are generally months where sales are not so great, just because people tend to wait out until the spring to make their purchase decisions. But with that said, we’re very encouraged by the results we saw in January and February,” Hatch added.
“They indicate a number of fundamentals that have been driving sales for a number of years. Chief among them is record strong affordability —the average price that people are paying for new vehicles vis-à-vis their average income (which) is better than it’s been in a generation.”
Other sectors also seem to be benefiting from early signs of improving economic growth this year, as well as the willingness of Canadians to spend more.
The Statistics Canada report showed sales were up 4.8 per cent in January at stores selling general items — again, that was a turnaround from a drop of 3.4 per cent in the previous month.
At the same time, sales at outlets specializing in building materials and garden equipment increased by three per cent from a marginal gain of 0.3 per cent in December. Purchases of health and personal-care items bounced back from a 2.7-per-cent decline to gain of 3.5 per cent in January.
The January retail picture is a positive sign for the economy.
“Along with the earlier reported jump in manufacturing volumes (the retail report) leaves our tracking of economy-wide January GDP growth at 0.3 per cent, despite ongoing weakness in the oil and gas sector,” RBC senior economist Nathan Janzen said in a note to clients.
That increase, he said, “bodes well” for 2.2-per-cent growth in the first quarter of 2016, although some other economists see Q1 growth coming in closer to two per cent — but those forecast will likely change in the coming days, with many analysts waiting to see details of the Liberal government’s stimulus plan that will be contained in Tuesday’s federal budget.
There is also uncertainty over where global oil prices — which collapsed more than a year ago and pulled Canada into a recession during the first half of 2015 — will be trading in the months ahead.
Meanwhile, a separate report Friday from Statistics Canada showed the country’s inflation rate slowed in February to 1.4 per cent on a year-over-year basis, led lower by cheaper gasoline price and down from an annual pace of two per cent in January.
Most analysts had expected the consumer price index to show an inflation rate of 1.5 per cent in February.
Overall, “a solid retail sales report points to slightly firmer Canadian growth in Q1,” economists at BMO Capital Markets, said in a note to investors.
“At the same time, inflation looks to remain tucked comfortably below two per cent.”
But some economists are quick to caution that January’s rebound in the retail sector may not lead a longer-term trend.
“It will be hard to maintain the current blistering pace retail sales without a turn for the better in the labour market,’ noted CIBC World Markets economist Nick Exarhos.
