November 7, 2011
Latest Canadian and U.S. economic data is a mix of more pluses than minuses
Chief Economist, CanaData
Retail spending is a fixture of economic activity. Even when times are tough, a certain amount of shopkeeper activity will continue regardless.
There are essentials that people have to buy to eat and means of transportation that must be maintained to get to work.
Wage earners need to be outfitted for their jobs and kids made presentable for school.
In the recession, which lasted from October 2008 to June 2009, there was only a brief period of violent decline in retail spending in Canada.
It occurred during the three months from September through December, 2008. The percentage drop in current dollar terms was 8.2%.
But then retail spending started to climb again, with the same relatively steep upward slope as before the downturn.
The period of sharp increases in retail spending continued for two years, from early 2009 to the end of 2010.
2011 has continued to feature an upward climb, but not to the same degree.
According to Statistics Canada, August 2011 retail sales were +0.5% month to month and +3.9% year over year.
A year-over-year figure of +5.0% or higher is what economists are looking for.
That way, with a “normal” inflation rate of +2.0%, “real” (i.e., after adjustment by a price index) consumer spending will be about +3.0%. Since personal expenditures account for more than half of gross domestic product, this will establish a solid base for growth throughout the economy.
U.S. retail spending reports are a month, and sometimes two months, more current than Canada’s.
In September, U.S. retail spending was a dynamic +8.0% year over year. That strength is a little hard to explain, given that the latest measure of U.S. consumer confidence has plummeted.
The Conference Board’s confidence index for October has dropped 6.6 points month to month to stand at a very low reading of 39.8, comparable to where it was during the recession.
But some other measures on the U.S. economy have turned a little more encouraging.
In September, the number of unsold single-family homes in the U.S. stayed constant at a very low level (160,000 units) vis à vis the month before.
At the same time, single-family new home sales rose 5.7% month to month.
Therefore, the number-of-months inventory of unsold homes stepped down to 6.2.
On only one other occasion since January 2009, when the number-of-months inventory peaked at 12.2 months, has the figure been as low.
In April 2010, it was also 6.2, but immediately shot up again in the following month when a substantial tax incentive for first-time new home buyers expired.
The pre-recession level for number-of-months of unsold inventory was 4.5 months. A figure of 6.2 is still high, but not outrageously so.
A relatively modest pick-up in sales would quickly bring the figure back in line with its more usual position.
The latest S&P/Case-Shiller existing homes price index also moved in the right direction. The 10-city and 20-city composite indices both rose 0.2% in August versus July.
On a year-over-year basis, the 10-city composite index in August was -3.5% and the 20-city composite index -3.8%. Both figures were less negative than in July.
Some of the numbers on U.S. home prices continue to be shocking, however.
For example, average resale home prices in Las Vegas are now 59.5% below their peak of August 2006.
And only two cities recorded positive year-over-year price increases in August — Detroit (+2.7%) and Washington (+0.3%).
The S&P/Case-Shiller press release singles out the Midwest for praise when it comes to resale home prices. Chicago, Detroit and Minneapolis have all recorded substantial month-to-month gains since May.
Detroit’s improvement undoubtedly relates to the better sales being wrung up by the former Big Three auto makers. Total retail sales in Canada (seasonally adjusted)
For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has an economics blog. His lifestyle blog is at www.alexcarrick.com
Data source: Statistics Canada.
Chart: Reed Construction Data - CanaData.
