The actual month-to-month increase of total retail sales in Canada in May 2007, at +2.8%, was the largest in almost ten years, dating back to December 1997. The actual year-over-year increase in the latest month was +8.2%.
Economy at a Glance – August 21, 2007
Year-over-year Smoothed Canadian Retail Sales Grow 6.2% in May
The actual month-to-month increase of total retail sales in Canada in May 2007, at +2.8%, was the largest in almost ten years, dating back to December 1997. The actual year-over-year increase in the latest month was +8.2%.
However, due to the volatility in this series, it is often more revealing to look at the moving three-month (smoothed) average. The benchmark figure for good smoothed retail sales growth is +5.0% year over year. In May, smoothed total sales growth was +6.2%, up from +5.3% in April. Smoothed retail sales growth has now been +5.0% or higher for almost two-and-a-half years, dating back to October, 2004.
Retail sales are an indicator of what to expect in terms of consumer spending in the national accounts. In turn, consumer spending drives 55% to 60% of total Gross Domestic Product (GDP). Rather than being tired, Canadian consumers are clearly still excited about shopping. The continuing strength in labour markets – in terms of employment and income gains – is helping to support this “hobby”.
Implications for Construction – Both a “Driver” and an “Offshoot”
Retail sales growth is both a driver of construction (e.g., new stores and malls) and an offshoot. With respect to the former, the outlook remains good, with a caveat that the expansion cycle is becoming geriatric. Concerning the latter, continuing strong housing markets (both new and existing) in Canada have caused a resurgence in sales in certain segments of the retail market.
For example, there was a particular resurgence in housing starts in May and June (230,000-unit average) after some weakness in February and March (206,000-unit average). As a result, sales by furniture and home furnishing stores bounced back in April and May (to nearly +10% year over year, smoothed) and by home centres and hardware stores in May (to +6.3% on a smoothed basis and +10.4% on an actual basis, both year over year).
Retail sales do have another influence, however, and that is through their impact on overall economic growth and government policy. In fact, the exceptional strength in retail sales was one of the prime arguments that convinced the Bank of Canada to raise its policy-setting interest rate (the overnight rate) to 4.50% from 4.25% on July 10th. Overheating of the economy is an inflationary threat and the interest rate measure is an attempt to “short circuit” rampant price increases.
Canadian Retail Sales – Three Months Smoothed
*"Year over year" is each month versus the same month of the previous year. Based on latest three-month averages of current dollar adjusted data (and placed in latest month).
Data source: Statistics Canada/Chart: Reed Construction Data – CanaData.
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