Canadian Consumers Are Full of Surprises By ARI CHARNEY on JULY 23, 2013 Despite a seemingly sluggish economy, the pace of Canadian consumers’ spending blew past economists’ estimates for May, for the biggest month-over-month gain since March 2010. According to Statistics Canada (StatCan), May retail sales rose 1.9 percent month over month, to CAD40.4 billion, compared to April’s tepid growth of 0.2 percent, which was revised a tenth of a percentage point higher from the initial report. By contrast, Bloomberg’s survey of economists shows the consensus forecast had been for growth of just 0.4 percent. However, that still would have been a marked improvement from retail sales’ average monthly growth of 0.1 percent over the prior six-month period. Equally important, sales growth occurred across nine of the 11 subsectors, while sales volume also rose for the third consecutive month, for growth of 1.9 percent. These figures might be somewhat worrisome, considering that the ratio of Canadians’ household debt to disposable income has only improved incrementally since its all-time high, declining to 161.8 percent in the first quarter from the record of 162.8 percent in the third quarter of 2012. But the good news is that retail spending may have been strong enough to offset the dampening effects of historic flooding in Alberta and a province-wide strike in Quebec on second-quarter gross domestic product (GDP). Economists believe these two events could shave three-tenths to four-tenths of a percentage point from June GDP and another one-tenth of a percentage point from July GDP. Although economists had expected sales of automobiles to remain flat, auto sales accounted for a substantial seven-tenths of a percentage point, or 36.8 percent, of overall sales growth. Motor vehicle and parts dealers led the way with a 4.3 percent month-over-month gain, to CAD11.7 billion, and an 8.3 percent rise from a year ago. Sales at new car dealers were also up 3.3 percent, to CAD9.3 billion, for the fifth consecutive month of growth. Interestingly, sales of motorcycles, boats, and recreational vehicles jumped 13.1 percent, to CAD1.1 billion, after a 4.7 percent decline in April. That could simply reflect seasonal spending in anticipation of summer, but the May 2012 numbers show that spending in this category dropped 2.2 percent. In fact, last year, sales in this “other motor vehicle dealers” industry showed three consecutive months of declines, from April through June, until July came in with 2.8 percent growth. In addition to widespread gains across industries, retail sales also grew in every province during May, with Quebec’s growth of 3.1 percent outpacing its peers in terms of dollar amount. Saskatchewan had the highest percentage gain, with 5 percent growth following growth in April of 1.8 percent, as the planting season finally got underway after a late start. Meanwhile, in percentage terms, the resource-rich province of Alberta boasted the strongest year-over-year growth, with sales rising 7.9 percent to CAD6.7 billion, on an unadjusted basis. In dollar terms, Quebec also had the biggest gain from a year ago, as sales climbed CAD548.5 million, or 5.7 percent, to CAD10.2 billion. Although the Bank of Canada (BoC) had previously forecast GDP growth of 1 percent annualized for the second quarter, economists are now contemplating hiking their estimates based on these latest numbers. Bank of Montreal economist Benjamin Reitzes says growth could exceed the bank’s forecast of 1.4 percent annualized for the quarter, thanks not only to retail sales, but also May’s solid numbers for wholesale trade, housing starts, and home sales. And CIBC Capital Markets economist Emanuella Enenajor believes second-quarter growth could come close to 2 percent, surpassing her team’s previous estimate of 1.6 percent. With retail sales now at an all-time high, as Enenajor memorably puts it, “Reports of the death of the Canadian consumer have been greatly exaggerated.” Given that first-quarter GDP grew by a stronger-than-expected 2.5 percent, if the second quarter also surprises to the upside, then Canada’s economy could be on a trajectory to beat the BoC’s forecast for full-year growth of 1.8 percent.
Posted on: Sat, 27 Jul 2013 13:55:00 +0000
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