- Retail sales volumes are posting fastest back-to-back gains in a decade
- There remains too much negativity toward the consumer…
- ...which counsels caution toward fiscal and monetary easing
- Canadian nominal retail sales m/m % SA, September:
- Actual: 0.4 / 0.9
- Scotia: 0.5 / na
- Consensus: 0.4 / 0.4
- Prior: 0.4 / -0.8
- October ‘flash’ nominal guidance: 0.8
Canada’s consumers are alive and kicking and on track to post the strongest back-to-back quarterly gains in retail sales volumes in a decade (chart 1). The last time we saw 5%+ quarterly annualized gains in sales volumes was over the 2014–15 period.
This fits my narrative that there is too much negativity toward the Canadian consumer and that we need to be careful toward stoking it further with Ford Bucks, Trudeau Bucks, GST/HST cuts and rate cuts. Individual sectors and firms may be challenged, but don’t treat them as representative of the overall health of the consumer.
September’s retail sales were strong and momentum continued in October. Nominal sales were up 0.4% m/m SA in September as discounting drove a faster 0.8% rise in sales volumes. Wonderful. Retailers are rising to the disinflationary occasion and to the delight of consumers as retailers trade off margins versus volume expansion. Chart 2 shows the weighted contributions to sales volume growth by category.
October’s flash nominal sales estimate is a gain of 0.7% m/m SA. That likely translates into a solid volume gain based on CPI and its components.
Overall, this gives 5.2% q/q at a seasonally adjusted and annualized rate for Q3 growth in sales volumes. Based on Q3, the way Q3 ended, and the tentative guidance for the start of Q4, we are tracking another 5% q/q SAAR gain in sales volumes in Q4.
As for the consumer beyond retail sales and hence services, several indicators are suggesting it is performing well such as strong flight volumes (chart 3).
Going forward there will be the lagging spending effects of a surge in immigration. Higher household leverage in Canada than elsewhere will shift to being a friend as the pass through effects of rate cuts are bigger than elsewhere. There is a massive amount of pent-up narrow savings, cash balances, and hoarded net worth across all income quintiles. There is significant pent-up demand for housing and all the stuff that goes with it. Wage growth is strong as aggressive settlements continue to push through in a much more unionized Canadian workforce than stateside. Let’s keep our fingers crossed on trade risks.
On the back of these numbers, I'm getting 0.1% m/m SA for September GDP next week. October GDP may be tracking a solid gain as well which would be a nice set up for Q4.
DISCLAIMER
This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank nor any of its officers, directors, partners, employees or affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.
These reports are provided to you for informational purposes only. This report is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any financial instrument, nor shall this report be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The information contained in this report is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a “call to action” or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. Scotiabank may engage in transactions in a manner inconsistent with the views discussed this report and may have positions, or be in the process of acquiring or disposing of positions, referred to in this report.
Scotiabank, its affiliates and any of their respective officers, directors and employees may from time to time take positions in currencies, act as managers, co-managers or underwriters of a public offering or act as principals or agents, deal in, own or act as market makers or advisors, brokers or commercial and/or investment bankers in relation to securities or related derivatives. As a result of these actions, Scotiabank may receive remuneration. All Scotiabank products and services are subject to the terms of applicable agreements and local regulations. Officers, directors and employees of Scotiabank and its affiliates may serve as directors of corporations.
Any securities discussed in this report may not be suitable for all investors. Scotiabank recommends that investors independently evaluate any issuer and security discussed in this report, and consult with any advisors they deem necessary prior to making any investment.
This report and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced without the prior express written consent of Scotiabank.
™ Trademark of The Bank of Nova Scotia. Used under license, where applicable.
Scotiabank, together with “Global Banking and Markets”, is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including; Scotiabank Europe plc; Scotiabank (Ireland) Designated Activity Company; Scotiabank Inverlat S.A., Institución de Banca Múltiple, Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Casa de Bolsa, S.A. de C.V., Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Derivados S.A. de C.V. – all members of the Scotiabank group and authorized users of the Scotiabank mark. The Bank of Nova Scotia is incorporated in Canada with limited liability and is authorised and regulated by the Office of the Superintendent of Financial Institutions Canada. The Bank of Nova Scotia is authorized by the UK Prudential Regulation Authority and is subject to regulation by the UK Financial Conduct Authority and limited regulation by the UK Prudential Regulation Authority. Details about the extent of The Bank of Nova Scotia's regulation by the UK Prudential Regulation Authority are available from us on request. Scotiabank Europe plc is authorized by the UK Prudential Regulation Authority and regulated by the UK Financial Conduct Authority and the UK Prudential Regulation Authority.
Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V, Grupo Financiero Scotiabank Inverlat, and Scotia Inverlat Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities.
Not all products and services are offered in all jurisdictions. Services described are available in jurisdictions where permitted by law.