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An employee works at a Neon shoe store in Toronto on Oct. 9, 2020.

Melissa Tait/The Globe and Mail

Retail spending in Canada has shown resilience during the second wave of the pandemic, but the outlook is turning bleak as lockdowns tighten across the country.

Sales of merchandise rose 1.1 per cent in September from August, bucking an initial estimate of little change in the month, Statistics Canada said Friday. It was the fifth consecutive month of expansion, and total sales of $53.9-billion set a new monthly record.

However, as Canada heads into the crucial holiday season, the momentum is at risk of stalling or even regressing. Manitoba and Ontario are again placing restrictions on in-person shopping, and consumer confidence has tumbled amid a resurgence of COVID-19 cases.

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In a troubling sign, Statscan estimated Friday that retail sales were “relatively unchanged” in October.

“I think a repeat of [September’s] performance is unlikely,” said Toronto-Dominion Bank economist Ksenia Bushmeneva. She pointed to high-frequency data showing foot traffic at retail outlets on the decline and Canadians scaling back on purchases. Friday’s report “might be the end of the good news, at least for now.”

The September results were marked by broad-based strength. Sales at automotive and parts dealers climbed 1.5 per cent from August and were slightly above pre-pandemic levels. Food and beverage sales grew 0.9 per cent. And furniture and home furnishings jumped 4.5 per cent. “Booming home sales are clearly providing an assist there,” said Bank of Montreal strategist Benjamin Reitzes in a note to clients.

Despite the return to school in September, sales at clothing and accessories stores were essentially unchanged from August. Compared with a year ago, revenue at apparel shops has plunged 12.5 per cent, partly the result of the work-from-home trend and fewer social gatherings.

“It’s hard to see a lot of upside there,” Ms. Bushmeneva said.

The winter months present no shortage of headwinds.

The Ontario government announced Friday that Toronto and nearby Peel Region would enter the strictest lockdown stage Monday, limiting retail stores (including in malls) to delivery and curbside pickups. Grocery stores, pharmacies, hardware and liquor stores will be able to operate at 50 per cent capacity.

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“This is going to be cataclysmic for our retailers, who have been trying to get back on their feet,” said Diane Brisebois, president and chief executive of the Retail Council of Canada. “For those in malls, it’s just another nail in the coffin.”

Manitoba decided this week to prohibit in-person shopping for non-essential goods; retailers must remove such items from shelves or rope off access. (Curbside pickups and deliveries of non-essential items are still allowed.) Those measures will last until at least Dec. 11.

Tighter restrictions already appear to be having an impact on spending. On Thursday Bank of Nova Scotia reported a sharp slowdown in credit-card and debit-card spending by its clients in the first half of November.

“Going forward, with new restrictions likely to be introduced in the coming weeks, payment flows are likely to decline even further,” it said.

Another challenge is that holiday get-togethers look increasingly fraught in parts of the country where infections are rapidly rising.

“Typical holiday spending will likely be curtailed as extended family and friends don’t gather together this year to exchange gifts,” said Royce Mendes, senior economist at CIBC Capital Markets, in a report.

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But the situation is not entirely dark. Outside of Manitoba and Ontario, new restrictions have mostly targeted close-contact service industries, which could redirect consumer dollars to goods; during the first wave, for instance, grocery stores were able to capitalize on tighter rules for restaurants. E-commerce sales, which totalled $3.2-billion in September, could also get a lift this winter as more consumers look to online shopping. And federal income support will continue flowing to the sick and underemployed, allowing them to buy necessities.

A major concern for retailers, however, is whether more provinces will emulate Manitoba and Ontario.

“We’re concerned for all retailers,” but especially small businesses, Ms. Brisebois said. For them, another lockdown “may be the last hurrah.”

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