Canadian February Retail Sales Rise More than Expected

Retail sales in February 2013 rose a stronger than expected 0.8% following a 0.9% gain in January.
The increase was helped by a price-related 1.9% jump in gasoline station receipts along with a 1.0% rise in sales at motor vehicle dealerships. Excluding these two components, sales rose a solid 0.5% following a 0.7% gain in January.
On a volumes basis, sales were disappointingly flat although the gain in January was revised upward significantly to 1.1% from the unchanged activity previously reported.
Unchanged volumes of retail sales in February are disappointing although it followed much greater strength in January. As well, given the earlier strength in manufacturing volumes in February, overall February GDP still looks likely to increase 0.2% in the month thus matching January's gain. These back-to-back gains augur well for growth in the first quarter of 2013 to strengthen relative to the disappointing 0.6% annualized gain in the fourth quarter of 2012. Our projected first-quarter 2013 increase in GDP of 1.9%, however, is modest and would fail to reduce the amount of excess capacity in the economy or put sustained downward pressure on the unemployment rate. Given the very low level of inflation, the economic environment remains one in which the central bank keeps monetary conditions highly accommodative.
Nominal retail sales in February 2013 rose a robust 0.8% in the month and compared to expectations of a moderate increase of 0.3%. The increase builds further onto the 0.9% increase in January, which was revised downward slightly from the previously estimated gain of 1.0%.

The overall increase was led by a 1.9% jump in receipts from gasoline stations that were helped by a jump in gasoline prices in the month. The motor vehicle component also managed a solid increase by rising 1.0% following a 2.9% jump in January 2013 as the component continued to unwind the unexpected 6.7% plummet in December 2012. Excluding these two volatile components, sales rose by a solid 0.5% following a 0.7% gain in January. The increase was led by gains in electronic and appliance stores (1.3%), general merchandise stores (2.8%), and sporting goods stores (0.5%). These gains more that offset declines at furniture stores (2.5%) and clothing stores (0.6%).

On a volumes basis, February retail sales were disappointingly flat; however, volume sales in January were revised upward significantly to 1.1% from a previous estimate of unchanged sales. Given the earlier-reported strength in manufacturing volumes in February, overall February GDP still looks likely to increase by 0.2% in the month, thus matching January's gain. Although today's report suggests some downside risk to the February increase, it also suggests the risk of an upward revision to the January gain.

Back-to-back monthly gains in GDP augur well for growth in the first quarter of 2013 to strengthen relative to the disappointing 0.6% annualized gain in the fourth quarter of 2012. Our projected first-quarter 2013 increase of 1.9%, although slightly above the Bank of Canada's forecasted 1.5%, is modest and would fail to reduce the amount of excess capacity in the economy or put sustained downward pressure on the unemployment rate. Given the very low level of inflation, the economic environment remains one in which the central bank keeps monetary conditions highly accommodative in order to generate a strengthening in the pace of growth and a greater improvement in labour markets. The overnight rate is expected to be maintained at the current 1.00% until the middle of next year and then only rise to 1.50% by the end of 2014.

IMOH, Clement I.
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