Canadian Retail Sales Increased 1.0% in October

Retail sales increased 1.0% in October, following a 1.0% increase in September. Sales increased in 7 of 11 retail industries. Motor vehicles and parts sales were up 2.0%, after a 3.3% rise in September. Excluding motor vehicles and parts, retail sales were up 0.7% with the largest increase registered by clothing & clothing accessories stores and gasoline stations (+1.8%). This month’s worst performers were furniture & home furnishings stores (-0.8%) and miscellaneous store retailers (-0.8%). On a regional basis, sales were up in 8 provinces. The strongest increase was observed in Alberta (+3.0%) while Ontario (-0.1%) and Nova Scotia (+0.0%) lagged. In September, volume retail sales were up 0.6%, after increasing 0.6% in September (top chart).

OPINION: October’s retail sales increase was twice the pace expected by the consensus. This performance was all the more impressive as it comes on the heels of a 1.0% increase in September. Some will be surprised by this performance given the recent softening in labour market (jobs were down in 3 of the last four months). Still one must not forget that total hours worked were up a whopping 4.7% in Q3, providing some support in the quarter. Discretionary spending, which we define as sales excluding groceries, gasoline and healthcare is currently on track to expand 8.8% in nominal terms in Q4, the best showing in almost two years, a sign of health of Canadian consumers. Even assuming no growth over the next to months, volume sales would be expanding at a 4.4% clip, up markedly from 1.9% in Q3. As a result, we expect consumption to grow by 2.4% in Q4, its best quarterly showing in 2011. Although labour market performance in Q3 partly explains recent retail sales strength, some of it was most certainly achieved through a higher debt load (motor vehicles sales hit a new record high in October in $ terms). In light of the recent deceleration of the labour market and already indebted households, the consumption growth rate is likely to hand up being between 1.5% and 2% in 2012.