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Duration: 4:48

Level: Beginner

The Retail Trade lesson discusses how it’s calculated, where to find it, how to forecast it, how it’s influenced, and how it influences financial markets and the economy. Measuring the dollars spent in the Canadian economy is significant because consumption is the largest contributor of economic activity.

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Study Notes:

Monthly changes in retail transactions are measured in the Retail Trade report. The report provides details on sales activity for a wide variety of business sectors. Motor vehicle and parts, furniture and home furnishings, clothing, electronics and appliances, food and beverage and general merchandise are some of the sectors covered. Within each sector, figures are reported for specific kinds of sales as well, like separately reported used cars and automotive parts, or liquor stores and supermarkets. Retail sales are segmented by ecommerce sales, province, territory, and metropolitan area. Spending trends are adjusted for seasonality, such as in the summer when people typically travel more. In addition, retail sales adjusted for inflation can be found within the report although the headline number is reported in current Canadian dollars. Also, core retail sales are reported which exclude gasoline and motor vehicle and parts dealers due to their volatile characteristics. The data is collected through surveys conducted via mail and telephone and through administrative data such as taxes. The data release is published monthly by Statistics Canada, generally near the 22nd day of each month, at 8:30am Eastern time. Statistics Canada measures retail trade to support informed decision making made by individuals, businesses, non-profits and governments.

Retail trade is decisive indicator of economic conditions. It shows how consumers think and behave against the backdrop of a constantly evolving economy. As with most countries globally, Canada relies on domestic consumers to spend their incomes to stimulate the economy as their spending generates incomes for other businesses and individuals. Furthermore, the Bank of Canada uses retail trade figures to monitor and guide economic and monetary policies.

A robust retail trade reading suggests consumers are feeling confident about the economy as they continue to purchase goods and services. If the readings are weak, it could signal alarm among consumers and a possible economic slowdown. Businesses and the economy both grow when retail trade is strong, since it boosts revenues, earnings and produces more jobs. In turn, this results in higher investment, more loan activity, increased tax revenue for governments and greater GDP. If retail trade declines, as it did during the 2008 financial crisis and the COVID- 19 recession, the global economy suffers as a result of its interconnectedness and the sizeable impact Canada’s largest trade partners have.

To forecast retail trade, we can look at leading economic indicators such as consumer and business sentiment to see how consumers and businesses feel about the present and future. Foot traffic, air passenger levels and fuel sales to see if consumers are moving around.

Employment, unemployment and wages to see if a weakening labor market may add stress to consumer wallets and purses. In addition, we’d listen to the earnings calls and monitor the stock performance of some of the largest publicly traded companies for signs of a consumer slowdown or expansion.

During a time of tighter monetary policy and higher interest rates, durable items such as automobiles, refrigerators, and furniture will cost more to purchase. It is pivotal to analyze consumer behavior in response to monetary policy changes by keeping an eye on the Retail Trade Report. In the past, tighter monetary policy has resulted in diminishing consumer spending and sometimes but not always, recession.

Market participants value the month-over-month and year-over-year percent changes in retail trade. Retail trade is sometimes a major contributor to market moves. If retail trade is worse than expected, markets tend to decline more, whereas if it is better, they rally more. Rising retail trade leads to a more robust economy and a landscape that is advantageous to international equities.

Evaluating retail trade for signs of economic deceleration or acceleration is an integral part of economic analysis.

Most recent retail trade report

Retail trade explained

Disclosure: Interactive Brokers

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