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Retail sales growth in Canada isn’t keeping up with the U.S.04/24/2012 by Alex Carrick
Canadian retail sales in February (-0.2%) recorded their first month-to-month decline since July of last year, according to Statistics Canada. On a year-over-year basis, they were still relatively strong at +4.1%.
A good year-over-year figure for retail sales growth, if maintained on a consistent basis, is +5.0%.
Since the retail sales numbers include some degree of volatility from month to month, it is often advisable to examine them in “smoothed” form. The way this is usually done is to calculate three-month moving averages.
On such an adjusted basis, Canadian total retail sales in March were +4.2%. The comparable U.S. figure was +6.4%.
The U.S. has been maintaining stronger retail sales growth than we have lately. There is some history to take into consideration.
During the recession, Canadian retail sales declined, but to nothing like the same extent as south of the border. The Canadian number bottomed out at -6% in February 2009. America’s trough was -10.9% the month before.
Since the summer of 2010, however, the relationship has reversed. Smoothed year-over-year U.S. retail sales have exceeded what Canada has achieved during the past 18 months straight.
Month-to-month retail sales in Canada in March were held back by motor vehicle and parts dealers (-2.4%) and electronics and appliance stores (-0.6%).
Support for retail sales month to month came from building material and garden equipment suppliers (+2.2%), gasoline stations (+1.7%) and clothing and clothing accessory stores (+1.3%).
Year-over-year retail sales is where motor vehicle and parts dealers have shined (+9.4%), with gasoline stations (+6.7%) and clothing and clothing accessory stores (+6.3%) also making substantial contributions.
In some cases, prices have contributed to the percentage changes, since the retail sales numbers are in current dollars (i.e., not adjusted for inflation). For example, the gasoline sub-index was +6.6% in the latest Consumer Price Index (CPI) report.
Regionally, total retail sales have been strongest in the three western-most provinces – Alberta (+9.1% year over year), Saskatchewan (+6.2%) and British Columbia (+5.8%).
Ontario (+1.9%) has fallen well behind the national average (+4.1%). Quebec is also lagging (+3.4%), although not by as much.
The strength in U.S. retail spending over the past year and a half has been encouraging to see. But it’s also been a bit of a mystery.
American consumers have been tidying up their finances and getting their debt under control to a greater extent than in Canada. An additional drawback for retail purchases has been the chaotic state of the U.S. housing market.
The value of one’s home is often the bedrock upon which all other spending plans are based.
There may be another side to the story. Large numbers of people have been forced to give up their homes due to mortgage foreclosures. But this has often freed up income to be spent in other areas.
It’s also true that U.S. employment is on the comeback trail. 2.5 million net new jobs have been created since January 2011.
As for U.S. home prices, however, they’ve been depressed for a long time and still haven’t stabilized at the bottom.
The S&P/Case-Shiller home price results for February were disappointing once again. Both the 10-city and 20-city composite indices declined 0.8% month to month.
The year-over-year results were -3.6% for the 10-city composite and -3.5% for the 20-city composite. There was one good thing to note – the year-over-year percentage declines for both series were not quite as great as in January (-4.1% for the 10-city composite and -3.9% for the 20-city composite).
It’s also interesting that five of the 20 cities monitored by S&P/Case Shiller recorded year-over-year gains in existing home sales prices – Phoenix (+3.3%), Detroit (+1.5%), Miami (+0.8%), Denver (+0.5%) and Minneapolis (+0.4%).
The improvement in Pheonix has to be taken in context. Its residential real estate market was devastated in the downturn and prices remain more than 50% below their previous peak.
Atlanta (-17.3%) is the only major city in the U.S. still recording a double-digit percentage drop in home prices year over year.
The Canadian Real Estate Association (CREA) is saying that year-over-year existing home prices north of the border are about even with last year. The very active Toronto market is helping to support the national average.
Vancouver had exceptional sales of high-end homes at the start of last year and, as expected, that’s influencing the year-over-year comparisons this year.
In both Canada and the U.S., the future for retail sales will largely depend on job creation.
Each monthly labor market report in both countries is awaited with eager anticipation.
Based on latest three-month averages of current dollar adjusted data (and placed in latest month).
Chart: Reed Construction Data - CanaData.