Despite persistence of high levels of unemployment due to the pandemic, Canadian retailers are experiencing a ‘V’ shaped recovery.
May spending surged and early data points to a return in June to pre-pandemic retail sales levels amid the economic restart, store reopenings and release of pent-up consumer demand.
May sales rose 18.7% from April, led by vehicle sales and clothing stores, although most sectors showed gains. If June’s preliminary estimates for a 24.5% increase holds, sales are already back to February levels.
E-commerce sales continued to rise, with sales up 110% from a year ago in May, making up 8% of sales. Consumers have become more accustomed to and comfortable with online purchasing which should continue.
B.C.’s retail downturn has been shallower than those in other parts of the country, as most businesses remained operational via curbside pickup and growing online presence. From February to April, sales fell 23% compared to 33% countrywide. May’s 12% gain narrowed this gap to 13% (led by Vancouver), while Canadian sales were still 20% lower.
Through five months, B.C. sales fell 6.9% from same period 2019 amid deep declines at auto, furniture and clothing stores and gas stations. In contrast, with much of the population staying and working at home, grocers, building material stores and electronics stores have seen sales rise.
The surprising retail recovery is likely to face headwinds. Federal fiscal programs have supported incomes amidst job loss, while pent-up demand from staying homebound and lack of spending alternatives have likely lifted sales. Momentum is expected to slow in the second half this year as the economy settles into a new normal of a weak economy, and high unemployment, while fiscal support rolls off.
Canadian consumer price inflation moved back into positive territory in June to 0.7%, following a negative reading of 0.4% in May. Price levels posted a stronger than normal monthly increase, with seasonally adjusted prices up 1% month-to-month. The flip-flop in headline year-over-year gains owed in large part to a rise in gas prices. The price at the pump rose 10% from May, driven by higher demand and underlying crude prices. This contributed to a narrowing of the year-over-year gasoline price decline to -15.7% from a 30% drop in May. Food prices remained firm with growth of 2.7%. More broadly, the reopening of the economy has contributed to firming of inflation.
B.C. headline inflation also turned positive, with growth of 0.5%, following a 0.2% decline in May. This remains substantially below pre-pandemic levels when Statistics Canada’s Consumer Price Index growth was 2.4%. Drivers were similar to the national patterns lifted by gas prices and a 3.7% year-over-year gain in food prices.
Bryan Yu is deputy chief economist at Central 1 Credit Union.
