Canada’s Total Retail Sales -0.7% in February versus January
Year-over-year total Canadian retail sales were +5.7% on an actual basis in February 2008 and +6.2% on a three-month smoothed basis. However, they did decline -0.7% on an actual month-to-month basis versus January and this was the first such drop in seven months going back to July 2007.

The month-to-month decline in retail sales was in keeping with the trend in two other key measures of consumer demand: wholesale trade dollar volume (-1.8%) and new motor vehicle sales in units (-3.2%). It should be noted that there is some double counting in these series. For example, car sales in various forms appear in all three measurements.

Construction-related retail sales (see accompanying graph) have resumed downward drifts after making minor comebacks in the summer of last year. Multi-family housing starts have held up well so far this year, but singles are off by 11%. CanaData’s non-residential starts (-13% in dollar volume) recorded a surprisingly weak quarter at the beginning of this year, suggesting that firms are being more cautious in their investments (and coincidentally saving cash for rainy days ahead) than they may be saying publicly.

Paycheques only Stretch so far
Retail spending is a leading indicator for personal consumption expenditures, which make up 55% to 60% of Canada’s Gross Domestic Product. The problem going forward is that paycheques only stretch so far. The cost of gasoline at $1.20 per litre and moving higher is cutting into spending in other areas that are more optional, such as entertainment. Expect to hear that all categories of retail, from big box outlets to mom and pop shops, are starting to feel the pinch.

When the supply of a product is in short supply, producers sometimes place their customers on allocation. At this time, what is in short supply is money left over once the family cars have been filled up. I know it’s stretching the analogy, but non-gasoline retail sales have now been place on allocation by you and me.  

Implications for Construction
The problems set out in the foregoing will begin showing up in hirings in retail trade, wholesale trade and the transportation of goods. It does not augur well for capital spending from the retail sector going forward. The effect will be more pronounced in the East than the West, where the general level of economic activity will remain stronger as a result of the more buoyant resource sector.

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