Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
Retail sales posted another robust gain in September, and the preliminary estimate suggests that they remained solid in October. In volume, retail sales rose 1.3% q-o-q, indicating a rebound in consumer spending in Q3. Nevertheless, despite the increase in overall spending, core retail sales in volume have seen a more modest increase (+0.2% q-o-q) and have been mostly unchanged since Spring 2022 (Fig 1).
Retail sales have been driven mainly by population growth in recent years. However, the rise in headline retail sales in recent months points to a bottoming out in overall spending per person. Nevertheless, despite the improvement in recent months, spending volume per capita is still about 4.5% below its recent peak. We estimate that retail sales adjusted for inflation and population growth were lower by 1.3% y-o-y in September, while core retail sales were also down (-4.1% y-o-y).
The strength in retail sales in September was mainly driven by strength in Alberta, Quebec and BC. While we are seeing some signs of stabilization, spending per capita adjusted for inflation and population is lower than for the same month last year in most provinces (see Fig 4). We continue to note that there is a link between the strength in consumer spending, indebtedness and insolvencies, with much weaker retail sales in provinces with higher debt and insolvencies.
Overall, the report suggests that consumer spending may have turned a corner. As such, there are some signs that spending per capita is bottoming out. This is positive news since the Canadian economy would have been in a recession because of the decline in spending per person (see It’s a “Me-cession”, not a recession). Moreover, the announced temporary GST cut should provide further support to consumer spending in the coming months. However, the question is how much of the increase will be simply spending that is brought forward leading to weakness once the tax cut is reversed. In addition, the lower immigration targets announced by the government bring significant uncertainty to the outlook for consumer spending for the coming years. For the BoC, signs that consumer spending is improving, especially on a per capita basis, will be welcomed. Once we add the further support coming from the temporary GST cut, it seems more likely that the BoC will cut by 25bp in December than by 50bp.
Retail sales rose by 0.4% m-o-m in September, in line with expectations. Compared to the same month last year, retail sales rose 0.8% y-o-y. Statistics Canada also reports that retail sales are estimated to have jumped 0.7% m-o-m in October based on a preliminary estimate.
Monthly sales were higher in 6 out of 9 subsectors. The main increases were in spending at food and beverage retailers (+3.0% m-o-m) and at building material and garden centres (+3.0% m-o-m). These higher sales were partly offset by declines in spending at motor vehicles and parts dealers (-0.7% m-o-m), gasoline stations (-2.3% m-o-m), and clothing, footwear and accessories stores (-0.8% m-o-m).
Core retail sales, which excludes motor vehicles and parts and gasoline stations, rose 0.4% in September (+1.0% y-o-y).
In volume terms (i.e. adjusted for inflation), retail sales jumped higher by 0.8% in September (+1.7% y-o-y). Core retail sales are estimated to have jumped +1.0% on the month (-0.2% y-o-y).
At the regional level, headline retail sales were mixed and the observed decline we mainly the result of lower sales at motor vehicles and parts dealers. The biggest increases were in Alberta (+2.3% m-o-m), PEI (+1.5% m-o-m), Quebec (+0.6% m-o-m), and BC (+0.6% m-o-m). These were partly offset by declines in New Brunswick (-0.7% m-o-m), Manitoba (-0.5% m-o-m), Saskatchewan (-0.4% m-o-m), and Ontario (-0.1% m-o-m)
Focusing on the y-o-y changes, the value of retail sales increased in most provinces, except in Ontario (-0.7% y-o-y) and BC (-0.5% y-o-y). Retail sales rose the most in Newfoundland (+8.8% y-o-y), PEI (+4.3% y-o-y), Alberta (+3.9% y-o-y), and New Brunswick (+2.9% y-o-y)
Looking at the value of core retail sales, they are lower compared to last year in every province, except PEI (+1.2% y-o-y). The biggest declines are in Newfoundland (-5.2% y-o-y), Nova Scotia (-3.8% y-o-y), Manitoba (-2.7% y-o-y), and Ontario (-2.2% y-o-y).
In volume terms, we estimate retail sales increased in all provinces, led by Newfoundland (+9.7% y-o-y), PEI (+5.2% y-o-y), Alberta (+4.8% y-o-y), and New Brunswick (+3.8% y-o-y).
In Alberta, retail sales jumped +2.3% m-o-m in September (+3.9% y-o-y). An increase in sales at motor vehicles and parts dealers was the main source of the increase in retail sales. Nevertheless, we estimate that core retail sales rose by 2.1% m-o-m (-0.4% y-o-y) in September. Although there are no official volume details at the provincial level, we estimate retail sales volumes in the province rose by 2.7% y-o-y in September.
Statistics Canada also releases retail sales numbers for Calgary and Edmonton. The data shows some divergence between regions. As such, retail sales in Edmonton increased by 3.0% y-o-y, while they were flat in Calgary (0.0% y-o-y) and declined 0.8% y-o-y) in the rest of the province.
The core measure continues to show a different regional disparity, with sales increasing by 0.6% y-o-y in Edmonton and 0.8% y-o-y in the rest of the province, while they declined 2.6% y-o-y in Calgary.