Retail sales flat in March as supply issues, chip shortages weigh on car sales

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Retail sales in Canada were virtually unchanged in March at $60.1 billion as sales at new car dealers fell, offsetting gains elsewhere as consumers showed a willingness to keep spending, Statistics Canada reported Thursday.

The result compared with the federal agency’s initial estimate for the month that suggested sales rose 1.4 per cent. The preliminary estimate for April suggests retail sales rose 0.8 per cent for the month, but the agency cautioned the figure will be revised.

Statistics Canada said sales in March were up in 10 of the 11 subsectors it tracks, representing 75 per cent of retail trade.

However, sales at motor vehicle and parts dealers fell 6.4 per cent as new car dealers saw a drop of 5.9 per cent.

“A lack of supply, as chip shortages hamper production, continues to weigh on vehicle sales,” Benjamin Reitzes, managing director of Canadian rates and macro strategist with BMO Capital Markets, said in a client note.

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“That’s been a theme for some time, but is expected to ease as we work through 2022.”

Sales at gasoline stations rose 7.4 per cent in March.

“Unfortunately, a good chunk of that underlying strength was due to broadly higher prices,” Reitzes said.

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Core retail sales _ which exclude gasoline stations and motor vehicle and parts dealers _ increased 1.5 per cent in March.

“Within that core breakdown, the increase was led by higher sales of building material,” Karyne Charbonneau, executive director of economics with CIBC Capital Markets, said in a client note.

Building material and garden equipment and supplies dealers recorded a 3.7 per cent increase in sales, Statistics Canada said.

“Clothing sales also continued their strong push with a 2.2 per cent gain on the month to follow the 15.5 per cent from last month, as more workers returning to the office look to upgrade their wardrobe,” she said.

In volume terms, retail sales fell one per cent in March.

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“It’s clear that inflation is eroding purchasing power,” Reitzes said.

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Consumer enthusiasm could wane in the months ahead as higher interest rates ripple through the economy, he added.

Meanwhile, retail sales grew roughly 2.7 per cent compared with a year ago, Charbonneau said.

“However, that gain entirely reflects inflationary pressures, with the volume of sales falling 5.1 per cent relative to March 2021,” she said.

“That reflects the fact that goods spending had already rebounded strongly by the beginning of 2021, and that gains in overall consumer spending since then have mainly come on the services side.”

Retail e-commerce sales were down 1.9 per cent in March on a seasonally adjusted basis compared with a year ago, Charbonneau said. On an unadjusted basis, online retail sales fell 24.6 per cent year over year, she said.

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However, that comparison is against a period where non-essential retailers were still impacted by the pandemic and many Canadians looked to online sales to avoid going out, she said.

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