The key to tracking the economic recovery post-COVID is the return to consumer demand. And we can measure this with retail sales.
One of the concerns about a potential “second dip” in the markets is if demand doesn’t return fast enough for companies to regain profitability.
Retail sales would have to return to near their pre-COVID levels in order to be able to say that a recovery has been achieved.
Following the experience in China, there is a hypothesis that with stores reopening, there should be a significant “bump” in consumer buying due to pent up demand.
Statistics tracked by The Economist show that consumers are using COVID as an opportunity to save at unprecedented levels. In fact, average savings are increasing even as people lose income.
If this trend continues even after the lockdowns cease, we could have lower consumerism going forward. And this could significantly impact economic growth.
Also, without an increase in retail sales, it’s less likely there will be a spike in inflation that will cause central banks to have to raise interest rates.
Far East countries were exposed to the virus first, and are worth extra attention to see how they evolve as a potential model for countries in the western hemisphere.
Australian Sales Outlook
In early May, Australia made the first major moves to reopen non-essential retailers.
Some venues continue to be closed, such as nightclubs. Therefore, we don’t really expect retail sales to return to normal levels yet. Also, we have to consider that retail sales peaked ahead of the expectation of lockdowns.
By the end of April, Australian retail sales were down 10.7% from normal. This would imply we need to see at least an 11.9% growth in retail sales to return to prior levels.
Expectations are for Australian May retail sales to come in at -3%, compared to -17.7% prior.
Canada Results Outlook
Canada was also in the process of reopening in May. However, it started later than Australia.
We can expect the pace of the rebound to be a little less than in other countries. However, there is a projection that Canada might have more pent-up demand due to not having a “stock up” increase in sales ahead of lockdowns.
During the pandemic, retail sales have declined by 10.0%. This means that we’d need to see a rebound of 11.0% in order to return to pre-COVID levels.
The consensus of expectations is for Canadian Retail Sales to register a further -15.1% drop, compared to -10% prior. Excluding autos, the drop is expected to be more modest, down -13.5% compared to just -0.4% prior