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Canadian retail sales rebound amid strong auto demand

REAL ECONOMY BLOG | March 18, 2022

Authored by RSM Canada


Retail sales in January went up by 3.2%, fully offsetting December’s decline despite the spread of the omicron variant, according to Statistics Canada.

In terms of volume, sales increased 2.9%, and there was growth in most industries. The fact that most sectors were little affected by omicron highlights the strong consumer demand that shows little sign of waning even as prices climb.

This is particularly true for auto sales, where consumers are willing to pay and pre-pay for their vehicles, and sellers, hindered by one wave of supply chain disruptions after another, still struggle to meet demand. Auto sales went up 5.3%, while new vehicle sales were up 5.5% on a month-over-month basis.

The electric vehicles market is where supply falls shortest of demand, as the waitlist grows longer by the day. Eager consumers are putting deposits down now for an EV to be delivered in a year’s time. Part of the growth in the gas-powered vehicles market is driven by consumers choosing a substitute when their preferred vehicle, an EV, will not be available for a long time.

A bar graph showing the percentage of January's month-over-month growth in all Canadian retail sectors

Clothing and accessories were the only sector that took a hit from public health restrictions implemented to limit the spread of omicron, as sales contracted 3.5%. The temporary closure of or reduced capacity in brick-and-mortar stores translated to fewer shoppers and lower sales.

With inflation still on the rise, especially rising energy prices, and wages failing to keep up, it is uncertain how much longer consumer demand can maintain its vigor. When households are spending most of their income on housing, food, and gasoline, core retail goods and services will take a hit. One exception is the auto sector, as EV demand will only grow hotter in response to soaring gas prices.

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This article was written by Tu Nguyen and originally appeared on 2022-03-18 RSM Canada, and is available online at https://realeconomy.rsmus.com/canadian-retail-sales-rebound-amid-strong-auto-demand/.

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