MNI REALITY CHECK: Canada July Retail to Slow After Re-Opening

Canadian July retail and wholesale sales reports due Friday are headed for a marked slowdown following a burst as the economy re-opened, with strong demand for essentials like groceries and safety gear being dimmed by weaker discretionary purchases.

Retail sales growth will slow to 0.7% following June's record 24% rise that brought them just above pre-pandemic volumes, according to an MNI economist survey. Wholesale sales may continue to close the 4% gap from pre-Covid levels with a 2.8% gain in July following June's 19% increase.

Key points from industry leaders ahead of Friday's reports, due at 8:30am from Ottawa:

• Groceries and home improvement products are seen adding to retail sales as many people are working at home and avoiding large gatherings.
• Inventory levels are rising in case of a surge in demand if there are more COVID health restrictions.
  
• Travel and other close contact services still have it tough, with airline traffic down about 90%.

William McKinnon, President of Canadian Alliance Terminals Inc.:

• Many grocery wholesalers ran out of inventory in April and now are boosting their stockpiles higher than pre-pandemic levels. That is raising storage costs.
• "Retail prices are increasing which is a function of wholesale prices going up, and also less products are being put on sale."
• Wholesalers of PPE products, a rapidly growing business in Canada, are prepared to pay more for space, so some other wholesalers remain displaced.
• Car dealers have high inventories and are doing less repair work as people drive far less.
• North American supply chains are working, while Asian shipment volumes have declined.
• Industry confusion over path of future demand amid the risk of a second pandemic wave.

Simona Zar, Director, Industry Affairs and Public Policy at Supply Chain Canada:

• Big swings in demand are split between essential and discretionary items, and small versus large companies.
• "Non-essential and luxury goods experienced the hardest hit, while items like food, pharmacy, and home rebuilding materials are strong."
• Strength in e-commerce through the pandemic continues over store-based purchases.
• Small businesses are being hit much harder and will have more difficulties in the recovery.

Daniel-Robert Gooch, President of Canadian Airports Council:

• Air traffic is seen falling 72% this year and 65% next year.
• "Even with seeing a vaccine being developed, we expect that it takes 4-5 years for the air transport sector in Canada to recover."
• Business travel appears to have weakened more than leisure trips.
• "Two of our airports have announced that they will increase their airport improvement fees" Gooch said. "We do expect some airports may need to follow that lead if there is no financial revenue from governments."