Retail Sales in Canada +7.5% Year over Year in Latest Month
Retail sales in Canada continue to perform very well. The year-over-year level of actual retail sales in January 2008 was +7.5%. The three-month smoothed level was +6.6%. Both of these figures are well ahead of the benchmark number of +5.0% which indicates a strong level of activity.

Lying behind the retail spending strength are continuing healthy numbers on job growth in the country as a whole and a level of housing starts that is showing no significant moderation so far, unlike in the U.S. This is important because a lot of retail spending is home related.

Passenger Car Demand Heats Up
However, a sector other than housing stepped up (or better yet, drove up) in the latest month to propel retail sales. Passenger car sales were exceptional in the latest month. The automotive category as a whole was +12.0% year over year, although gasoline stations alone had a +24.0% gain, due to recent price hikes at the pump. In the latest New Motor Vehicle Sales report from Statistics Canada, unit sales of passenger cars were +16.2% in January 2008 versus December 2007. By way of contrast, unit truck sales were only +0.5% month to month.

Four Major Reasons for Spurt in Car Sales
There are four major reasons for the spurt in passenger car sales: (1) carmakers have extended discount programs and lowered prices to bring them into line with offerings south of the border, now that currency parity has been achieved; (2) there was a further cut in the Goods and Services Tax (GST) to 5% from 6% on January 1st; (3) financing charges have been lowered along with the Bank of Canada’s cuts to the overnight rate; and (4) passenger cars have become more popular versus the “truck” category (which includes vans and sports utility vehicles) since the most recent hikes in gasoline prices.

One interesting aspect of the vehicle sales numbers is that most of the increase has come in Eastern Canada. Relatively speaking, passenger cars are more popular in the east and trucks are more popular in the West, where there is more rugged terrain and longer distances to be traversed.

Some of the other categories with large year-over-year retail sales increases in January were: home electronics and appliance stores (+11.1%); home furnishings stores (+9.7%); and home centres and hardware stores (+5.6%). All of these tie in to continuing strength in residential construction in Canada and, to some degree, to the cyclical pick-up in non-residential construction that is underway.

Wholesale Trade Numbers Jumped Back Up in January
About a week ago, the January wholesale trade figures were released by Statistics Canada. Wholesale dollar volume jumped back up in the latest period (+2.6% month- to month) from a significant decline the month before (-2.6%). Particular strength was recorded in agricultural chemicals (e.g., fertilizers). This is being driven by strong export sales to such countries as China, India and Brazil. In addition, the heightened demand has bumped up prices, which adds to the volume increase. Fertilizer prices have increased, on average, about 25% versus a year ago. The inventory-to-sales ratio in the wholesale trade sector has fallen to its lowest level in six months.

It is apparent from all of the above that the Canadian economy is still moving ahead with considerable momentum. There may well be problems in the manufacturing sector as a result of the high-valued Canadian dollar and in such resource areas as forestry due to the U.S. housing collapse, but the average Canadian consumer is still spending money “like a good thing”.

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