When is zero growth in retail sales not necessarily a bad thing?
If you said (a) when it's not really zero growth at all and (b) when it's accompanied by a drop in fuel prices, then you're finding all the right answers in Canada's March retail sales report.
Yes, total sales, in dollar value, went absolutely nowhere last month. But the lack of growth was entirely the result of a drop in gasoline prices; if you exclude gasoline from the numbers, the value of sales was up 0.2 per cent in the month, the third consecutive monthly increase. And if you look at sales volumes – excluding price changes entirely from the equation – then sales were up 0.7 per cent, a decidedly strong number.
"The latter, coupled with previously reported gains in real manufacturing and real wholesaling, means that we have a winning trifecta which should be supportive of March GDP," wrote National Bank Financial in a note to clients.
Paul Ferley, assistant chief economist at Royal Bank of Canada, said the March retail sales volumes suggest some upside risk to March GDP growth forecasts (his bank has been expecting that the economy expanded by a modest 0.1 per cent in the month). Combined with solid GDP gains in January and Fedruary, he said, GDP growth for the entire first quarter looks on track for an annualized growth pace in the 2.3-per-cent range, far ahead of the thin 0.6-per-cent annualized rate in the fourth quarter.
"Such an increase, if realized, would represent an upward surprise relative to the Bank of Canada's currently forecasted increase in Q1 of 1.5 per cent," he wrote. "However, any move to push official rates higher by the central bank would require indications of this stronger growth being sustained."
As far as the question of sustainability goes, the retail sales numbers might be hard-pressed to duplicate March's biggest strength – a 3.1-per-cent surge from clothing and accessories. Given that the month marked the much-hyped opening of Target's first stores in Canada (all in Ontario), it's entirely possible the enthusiasm over the clothing-centric chain retailer contributed substantially to the strong sales gains. (Note that Ontario posted the biggest percentage sales gains among provinces in March.) Target continues to roll out more store openings in other parts of the country (it launched its first 24 locations in the West this month), and that could well spark buying for a while yet; but the danger is that these are retail sales merely being pulled forward by the Target excitement, and could be followed by a lull once all the buzz dies down.