Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud
Bottom line
Retail sales dropped in December because of the floods in BC and the re-imposition of restrictions to slow the spread of COVID-19. This setback in retail sales is temporary, with the preliminary estimate for January showing a bounce back in sales. Nevertheless, supply chain woes are expected to continue to somewhat hold back retail sales in the coming months. In addition, a return to more normal spending behaviour could also lead to an underperformance in retail sales, as spending shifts from goods to services (restaurants, bars, personal care, etc).
In Alberta, retail sales performance remains in line with the rest of the country. However, we note a divergence in retail sales between the metropolitan areas and the rest of the province. This could be explained by stronger employment gains in Calgary and Edmonton relative to the rest of the province.
The question for the retail sales’ outlook remains whether households will spend the savings accumulated during the pandemic in 2022 or whether households will show some restraint and increase precautionary saving and repay debt, especially in light of rising interest rates.
Retail sales dropped by 1.8% m-o-m in December. Compared to the same month last year, retail sales rose +8.6% y-o-y. The level of retail sales is 9.7% above its pre-pandemic level. Statistics Canada also reports that retail sales surged by 2.4% in January based on a preliminary estimate.
Monthly sales decreased in 8 out of 11 subsectors. On the month, the decline in retail sales resulted mainly from lower sales at clothing and footwear stores (-9.5% m-o-m), furniture, electronics and appliance stores (-7.3% m-o-m), and building material and garden centers (-5.0% m-o-m). These losses were partly offset by increases at motor vehicles and parts dealers (+0.5% m-o-m). Core retail sales, which exclude motor vehicles and parts and gasoline stations, declined 2.4% m-o-m (+4.9% y-o-y).
In volume terms, retail sales inched dropped by 2.5% on the month (+3.6% y-o-y) and core retail sales eased by 3.4% on the month (+1.6% y-o-y).
In Alberta, retail sales dropped by 2.3% m-o-m in December (+8.3% y-o-y). The level of sales in the province was 11.1% higher than before the pandemic. Retail sales in sectors, with the exception of gasoline stations (+3.7% m-o-m). The lower retail sales were mainly due to motor vehicle and parts dealers (-4.7% m-o-m), general merchandise stores (-5.3% m-o-m) and furniture, electronics and appliances stores (-11.5% m-o-m)
Core retail sales decreased by 2.3% m-o-m (+3.2% y-o-y) in December. Although there are no official volume details at the provincial level, we estimate that retail sales volumes in the province declined by 3.1% m-o-m (+2.5% y-o-y).
Statistics Canada has recently started to release retail sales numbers for Calgary and Edmonton. The data shows some divergence between regions. As such, retail sales in Calgary increased by 7.5% y-o-y, by 8.0% y-o-y in Edmonton, while sales were almost unchanged in the rest of the province (+0.2% y-o-y). The lack of details and the relative volatility in the data make it hard to determine the exact cause of divergences in retail sales between regions. However, the recent employment reports suggest that the recovery in the labour market has been stronger in Calgary and Edmonton over the past year than in the rest of the province and could explain part of the outperformance of the metropolitan areas.
Independent Opinion
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