Actual Retail Sales Drop Below Benchmark +5.0%
Actual year-over-year Canadian retail sales (+4.6%) in March 2008 dropped below +5.0% for the first time since last August. However, three-month-smoothed retail sales were still above the benchmark figure at +5.9% year over year. Smoothed retail sales have been consistently at or above +5.0% since the fall of 2004. The month-to-month change for “actuals” was +0.1% and for “smoothed” was +0.2%.

The latest year-over-year increase in the Consumer Price Index was +1.7%. Therefore, real (inflation-adjusted) retail sales are continuing to perform well. Part of the reason is that average hourly earnings in the country are ahead by +4.3%, a strong level of increase. Furthermore, it will be shown later in this report that the regional strength in retail sales ties in to the tightest labour markets.  

Pluses and Minuses for Retail Trade

The two cuts in the Goods and Services Tax (GST), from 7% down to 5%, have helped to boost retail sales. However, working against spending on other items has been the dramatic climb in gasoline prices (+11.6% in April 2008 versus April 2007).

Domestic sale of motor vehicles  remain quite healthy. Unit auto sales were +9.1% in first-quarter 2008 versus fourth-quarter 2007. This was the strongest quarter-to-quarter
gain in ten years. Passenger car sales have been stronger than truck sales due to their lower sticker prices and the fact that they are easier on gas.

Wholesale Trade Numbers -2.9% Year over Year
The wholesale trade numbers are not as encouraging as on the retail side, with “actuals” at -2.9% year over year and “smoothed” at -1.1% year over year. There is particular strength in agricultural products, including fertilizers and machinery, at the wholesale level. Saskatchewan is reaping the most rewards from the world-wide pickup in demand for farming-related products.

However, the wholesale trade figures include sales to the U.S. in such areas as auto and lumber products. Both of these sectors have been weak south of the border. Wood product sales are down along with the depressed level of U.S. housing starts and durable goods orders, which includes cars, are off as a result of falling house prices, job losses and even larger hikes in gasoline prices in the U.S. than in Canada.

Retail Sales are Riding the Resource Boom Regionally
Geographically, the retail sales strength is occurring in regions that are riding the boom in the resource sector. The Newfoundland and Saskatchewan economies are benefiting from record high world oil prices and retail sales in those two provinces are +7.3% and +13.4% respectively. Manitoba (+11.7%) and Nova Scotia (+6.3%) are also recording large increases in retail spending. Manitoba is processing nickel and copper ore and Nova Scotia is shipping natural gas.

Construction activity often ties in most closely with employment gains. Therefore, it is worthwhile to look at the year-over-year change in employment in the retail and wholesale sectors. Total employment in Canada in retail and wholesale trade has been flat over the past year. However, there has been considerable variation from city to city.

Retail Employment in Canada’s Six Largest Cities

The ranking of Canada’s six largest cities (by population) with respect to year-over-year retail employment is as follows: (1)Edmonton (+26.4%); (2) Calgary (+6.3%); (3) Ottawa-Gatineau (+1.4%); (4) Vancouver (+0.3%); (5) Toronto (-2.6%); and (6) Montréal (-7.2%). This is the exact same ranking as in CanaData’s composite measure of tight labour markets according to total employment gains (highest to lowest) and unemployment rates (lowest to highest). Of course, retail employment is part of the total labour market story in each city.

Taking all of these numbers into account, it appears that the prospects for retail construction are brightest both in western Canada and on the east coast, while central Canada (Ontario and Québec) will continue to languish. 

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