'Households are still feeling a bit of an affordability squeeze': Bartlett on November retail data

Canadian Retail Sales – November 2023 Analysis

Key Concepts:

• Retail Sales: The total value of sales at the retail level, a key indicator of consumer spending and economic health.
• Core Sales: Retail sales excluding automobile and parts dealers, gasoline stations, and food and beverage stores, providing a clearer picture of underlying consumer demand.
• Seasonally Adjusted Data: Data that has been adjusted to remove the effects of predictable seasonal fluctuations, allowing for more accurate comparisons between periods.
• Bank of Canada (BoC): Canada’s central bank, responsible for monetary policy and maintaining price stability.
• Stall Speed: A period of economic growth that is neither accelerating nor decelerating, characterized by slow or stagnant activity.
• E-commerce: Electronic commerce, or the buying and selling of goods and services over the internet.
• Flash Estimate: A preliminary estimate of economic data released before the final, more comprehensive figures are available.

1. Overview of November Retail Sales Data

Statistics Canada released retail sales data for November 2023, showing an increase of 1.3% to a total of $70.4 billion. This increase was observed in eight of nine retail subsectors, with the most significant gains in food and beverage stores. Core retail sales rose by 1.6%, and retail volumes increased by 1.1% during the same period. Randall Bartlett, Deputy Chief Economist at Dejardins, characterized this as “unambiguously a positive number for the Canadian economy.”

2. Underlying Factors and Sector Performance

The increase in retail sales represents a rebound in sectors that experienced declines in October. Specifically, food and beverage retailers saw a recovery. Motor vehicle sales in Alberta showed an increase, potentially due to consumers making purchases after delaying them to avoid earlier retaliatory tariffs on US imports. However, Bartlett cautioned against interpreting this as a definitive trend, noting the difficulty in distinguishing between one-off data points and broader economic shifts. E-commerce sales, conversely, decreased by 2.8%, a figure attributed in part to a trend of Canadians choosing to purchase goods from Canadian businesses ("buy Canadian") in response to trade tensions with the US.

3. Implications for the Bank of Canada

Bartlett believes the November retail sales data is unlikely to significantly influence the Bank of Canada’s monetary policy at its next meeting. The BoC has signaled a likely pause in interest rate hikes, given the economy’s lack of significant deterioration but also its failure to reaccelerate. The data supports the characterization of the Canadian economy as operating at “stall speed.” Retail sales have exhibited a “zigzag pattern” throughout the year, following a strong acceleration in 2023.

4. Consumer Spending and Economic Context

Canadian consumers have largely remained on the sidelines, neither significantly increasing nor decreasing their spending. This is attributed to factors such as uncertainty in the economic environment and relative weakness in the labor market. While there was a strong period of consumer spending in 2023, driven by temporary factors like the HST/GST holiday and motor vehicle rebates (particularly for EVs), overall spending has since stabilized. Inflation, while slightly above the Bank of Canada’s 2% target, remains a concern, particularly elevated food inflation, contributing to an affordability squeeze for households.

5. Government Policy and Private Sector Investment

The discussion touched upon the Canadian federal government’s increasing focus on defense spending and industrial policy, aiming to encourage private sector investment. Bartlett acknowledged the government is taking steps to create a positive investment environment, including reducing project evaluation times and harmonizing regulations. However, he highlighted significant external headwinds, including the trade war and the impact of the Venezuelan regime shift on heavy oil prices, which create uncertainty for investment in the energy sector. The success of these government initiatives will depend on whether they can overcome these external challenges.

6. December Retail Indicator & Data Reliability

The advanced retail indicator for December suggests a decrease of 0.5%. Bartlett noted this is consistent with the recent “zigzag pattern” of retail data. He also pointed out that Statistics Canada’s flash estimates have historically been relatively accurate, covering over 60% of retail companies surveyed.

7. Notable Quotes

• Randall Bartlett: “It’s unambiguously a positive number for the Canadian economy.”
• Randall Bartlett: “The Bank of Canada isn’t really going to move at next week’s meeting…today’s retail release isn’t going to move that all that much.”
• Randall Bartlett: “Canadian consumers…stay on the sidelines, not really cutting consumption and retail spending, but also not increasing it either.”

8. Data and Statistics

• November Retail Sales: Increased 1.3% to $70.4 billion.
• Core Retail Sales: Increased 1.6%.
• Retail Volumes: Increased 1.1%.
• E-commerce Sales: Decreased 2.8%.
• December Retail Indicator: Decreased 0.5% (advanced estimate).

9. Logical Connections

The conversation flowed logically from the initial release of the November retail sales data to a broader discussion of the Canadian economic context, the Bank of Canada’s policy outlook, and the impact of government initiatives. The analysis of sector-specific performance (e.g., motor vehicles, e-commerce) provided further nuance to the overall picture. The discussion of external headwinds and government policies highlighted the complex interplay of factors influencing the Canadian economy.

Conclusion

The November retail sales data provides a modestly positive signal for the Canadian economy, indicating a rebound in consumer spending after a period of stagnation. However, the overall economic outlook remains characterized by “stall speed,” with limited potential for significant acceleration. The Bank of Canada is likely to maintain its current policy stance, and the success of government efforts to stimulate private sector investment will depend on overcoming significant external challenges. The decline in e-commerce sales suggests a shift towards supporting Canadian businesses amid ongoing trade tensions. The December retail indicator suggests continued volatility in the short term.