Geoff Cowling

Retail sales rose for the third consecutive month in July by 0.6% on a seasonally-adjusted basis, close to Statistic Canada's preliminary estimate of 0.7%. This marks a deceleration from the 23% rise in June and a 21% rise in May, as stores were reopening. Sales were up in 6 of 11 subsectors, led by higher sales at auto dealers and at gas stations. Excluding these two subsectors, retail sales declined by 1.2%. Compared to the same time last year, retail sales were up by 5%.    

Sales were up in five provinces in July, the most notable increases were in BC, Manitoba, and Alberta. In BC, seasonally-adjusted retail sales were up by 2.1% ($7.6 billion) and by 0.9% ($3.4 billion) in Vancouver. Retail sales were up in the majority of subsectors, except in electronics/appliances and at auto dealers.  

Growth in e-commerce sales continued to slow in July, up by 63% year-over-year, following a 71% rise in the previous month. The slowdown is a result of the expansion of the reopening of physical stores. In July, e-commerce sales totaled $2.8 billion, accounting for 4.8% of total retails sales, down from 5% in the previous month. This excludes Canadians purchasing from foreign e-commerce retailers.  
    
Early estimates provided by Statistics Canada for August suggest that retail sales increased by 1.1%. Overall, the recovery in retail sales has been V-shaped with pent-up demand largely dissipated. Government support programs and low interest rates will continue to support retail spending. However, elevated unemployment levels, uncertainty around the continuation of deferral programs, and rising COVID-19 cases could also pose challenges going forward. 

Canadian employment gained 246,000 jobs in August (1.4%, m/m), following a gain of 419,000 in July. Combined with gains in May and June, national employment is now within 1.1 million of its pre-COVID February level. The national unemployment rate fell by 0.7 percentage points to 10.2% from the previous month. August gains were driven by full-time work, wherein the previous month it was in part-time work. Employment continued to increase at a faster pace in the services sector with the help of growth in educational services, accommodation and food services, and in other services sectors. Compared to the same month last year, Canadian employment was down by 5.3% (-1 million). 

Regionally, employment increased in all provinces except in Alberta and in New Brunswick, with the largest gains in Ontario (142K) and Quebec (54K). In BC, employment grew by 15,000 (0.6%,m/m) in August, which follows a 70,000 gain in July. The province is now at 94% of its pre-COVID February employment level. The gain in August brought down BC's unemployment rate by 0.4 percentage points to 10.7%. Meanwhile, in Vancouver, employment decreased by 2,300 jobs in August. Compared to one year ago, employment in BC was down by 6.6% (-170K) jobs. 

Canadian employment grew for a fourth consecutive month, but the pace of growth is slowing. This was expected as containment restrictions were lifted in the early summer months, but have since halted in an effort to contain rising virus infections. Employment recovery is expected to continue to slow from here on, as many of the hardest-hit industries have reopened and educators start to return to school. 

The BCREA Commercial Leading Indicator (CLI) continued to fall in the second quarter of 2020 from 127.6 to 121.9, representing the fourth consecutive quarterly decline. It was the second largest drop in the indicator in over two decades, reflecting the hardest hit months of the pandemic in April and May. Compared to the same time last year, the index was down by 9.8 per cent.

The second quarter of 2020 saw the complete shutdown of key economic industries in BC, while employment continued to decline in manufacturing and in key real estate sectors. In contrast, the financial component had the largest positive impact on the CLI on record, as REIT prices rose and risk spreads narrowed from the previous quarter. The underlying trend in the CLI continued its downward trend into the second quarter of 2020. This suggests that going forward, the environment for commercial real estate activity in BC will continue to be weak.

BC’s economy was slowed by the pandemic in the first quarter of 2020, and by the second quarter came to a halt. Manufacturing sales of both durable and nondurable goods fell by magnitudes not seen since the great financial crisis in 2009. The decline in wholesale trade was driven by lower sales in motor vehicles, and to a lesser extent by lower sales in personal and household goods such as clothing and footwear. Meanwhile, April saw the largest monthly drop in retail sales on record, as brick-and-mortar stores were shut down for most of the second quarter. Although online sales reached new highs during this period, they were not enough to offset the decline.

Employment growth in key commercial real estate sectors such as finance, insurance, real estate and leasing was negative for the second consecutive quarter, down by about 1,700 jobs, which is notably fewer than the 13,500 jobs lost in the previous quarter. Manufacturing employment fell for the fourth consecutive quarter by about 5,170 jobs, almost three times the number of jobs lost in the previous quarter.

The CLI’s financial component was positive in the second quarter of 2020 as the market bounced back from the full meltdown in late February that sent equity markets into free fall and government bond yields plummeting.