NEWS ANALYSIS
A robust economy and stock market are invigorating consumers’ wallets. Supported by an even stronger economy south of the border, retail in Canada has maintained its uptrend while digesting disruptive technological change.Sales, excluding autos, climbed about three times more than the consensus estimate and total retail sales went up 3.6 percent in the last year. The rise in May came mostly from a 3.7 percent rebound in motor vehicle sales. Sales volumes were up 2 percent.
The Canadian consumer is highly leveraged—holding roughly $1.70 of debt for every dollar of disposable income—and still hasn’t seen truly robust wage growth. Nevertheless, consumer spending is clearly ticking along.
TD senior economist Brian DePratto noted that retail sales only capture about 20 percent of overall consumer spending.
In the United States, retail sales for June were up 6.6 percent year-over-year, rising at the fastest clip in over eight years. The S&P 500 retail index is up over 20 percent in the last year and sits near an all-time high. This should bode well for Canada.
Trade War
As for trade tensions, uncertainty over its scope can cause businesses to hold off on projects and consumer confidence to potentially wane. The Conference Board of Canada’s consumer confidence indicator dipped slightly in June. But the current state of the trade war has not taken a toll on the macro-economy.Satov doesn’t think the trade dynamic between Canada and the United States will change dramatically in the end.
“Changing the trade dynamic between the U.S. and Canada will not be good for the U.S., just like it won’t be good for Canada,” Satov said. The bigger threat from growing U.S. protectionism is for China rather than Canada, according to Satov.
The internet and Amazon effect also are forcing traditional retail business models to transform. The players that are better at “omnichannel”—integrating online and in-store shopping experiences—will survive and do better, said Satov.
In-store tech—from smart tags, automated inventory management, and change-room technology—is improving, but its impact is immaterial when compared with disruption created by out-of-store tech.
The Bank of Canada’s narrative is that the composition of growth is shifting from consumption (household spending) to business investment and exports. However, consumption and its ongoing contribution from retail could keep playing an important role should the trade war ramp up such that exports and business investment suffer.
