Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
Thanks to the GST holiday, retail sales surged in December, and the preliminary estimate for January suggests that, despite a decline, retail sales remained well above their November level to start 2025. As a result, retail sales in Q4 grew 1.9% q-o-q, its fastest since 2021Q3. This suggests some strong support to growth from consumer spending in next week’s release of the 2024Q4 GDP numbers.
Consumer spending was improving before December and the tax break. As such, retail sales per person adjusted for inflation have bottomed out, indicating that the increase in retail sales was no longer only due to population growth. Nevertheless, spending volume per capita is still about 3.1% below its recent peak (Fig 2). We estimate that retail sales adjusted for inflation and population growth were lower by 0.3% y-o-y in December, while core retail sales were also down (-2.0% y-o-y). We continue to note a link between the strength in consumer spending, indebtedness, and insolvencies, with much weaker retail sales in provinces with higher debt and insolvencies, especially in BC and Ontario.
Overall, while consumer spending is improving, the temporary boost from the GST holiday is blurring the underlying trend. This is especially true given the uncertain economic climate at the start of 2025 due to the tariff threats that could hold back spending at the start of the year. It will likely take until the temporary impact of the GST break is reversed and the March retail sales numbers before we get a clearer picture of the underlying trend in spending. The lack of clarity will be a challenge for the Bank of Canada, but in light of a robust labour market, some increase in inflationary pressures and strong consumer spending, we believe the BoC will stay on hold at the March meeting.
Looking ahead, the weaker population growth resulting from lower immigration targets announced will be a drag on aggregate spending in 2025. However, recent rate cuts and continued improvement in income should lead to some increase in spending per capita this year and offset part of the impact of slower population growth (see Searching for the terminal rate).
Retail sales surged 2.5% m-o-m in December, stronger than expected. Compared to the same month last year, retail sales rose 3.9% y-o-y. The GST holiday played a big role in the jump higher in retail sales. Statistics Canada also reports that retail sales are estimated to have declined 0.4% m-o-m in January based on a preliminary estimate. This would still leave the amount of spending above its pre-tax break level.
Monthly sales were higher in all subsectors. The main increases were at gasoline stations (+4.2% m-o-m), food and beverage retailers (+3.5% m-o-m), general merchandise retailers (+3.2% m-o-m), and clothing and footwear stores (+3.1% m-o-m). Sales increased the least at furniture, electronic, and appliances stores (+0.1% m-o-m) and health and personal care stores (+0.9% m-o-m).
Core retail sales, which excludes motor vehicles and parts and gasoline stations, rose a more modest 0.4% m-o-m in December (+1.3% y-o-y).
In volume terms (i.e. adjusted for inflation), retail sales surges by 2.5% in November (+2.9% y-o-y). Core retail sales are estimated to have risen 2.5% on the month (+1.3% y-o-y).
At the regional level, headline retail sales rose in every province. The most significant increases were in New Brunswick (+5.7% m-o-m), PEI (+4.0% m-o-m), Manitoba (+3.7% m-o-m), and Quebec (+3.6% m-o-m). Retail sales increased the least in Newfoundland (+0.4% m-o-m), BC (+1.6% m-o-m), Ontario (+2.0% m-o-m), and Saskatchewan (+2.1% m-o-m).
Focusing on the y-o-y changes, the value of retail sales increased in all provinces, led by Newfoundland (+8.3% y-o-y), Manitoba (+6.3% y-o-y), Quebec (+6.2% y-o-y), and Alberta (+5.9% y-o-y). They increased the least in BC (+2.0% y-o-y), Ontario (+2.2% y-o-y), and New Brunswick (+3.2% y-o-y).
Looking at the value of core retail sales, they are also higher compared to last year in all provinces, with the biggest increases in Saskatchewan (+5.6% y-o-y), Quebec (+5.2% y-o-y), Newfoundland (+3.69% y-o-y), and Alberta (+3.3% y-o-y). They were flat in Ontario (+0.0% y-o-y) and little changed in New Brunswick (+0.2% y-o-y) and PEI (+0.4% m-o-m).
In volume terms, we estimate retail sales increased in all provinces, led by Newfoundland (+7.3% y-o-y), Manitoba (+5.3% y-o-y), Quebec (+5.2% y-o-y), and Alberta (+4.9% y-o-y). They rose the least in BC (+1.0% y-o-y), and Ontario (+1.3% y-o-y).
In Alberta, retail sales rose 2.4% m-o-m in December (+5.9% y-o-y). A rise in sales at motor vehicles and parts dealers, general merchandise retailers, clothing and footwear stores, and building materials and garden centers were the main sources of strength. These were partly offset by lower sales at food and beverage stores, furniture, electronics and appliances store, and sporting goods, hobby, books and others stores.
As a result, we estimate that core retail sales rose by 1.7% m-o-m (+3.3% y-o-y) in December. Although there are no official volume details at the provincial level, we estimate retail sales volumes in the province rose by 4.9% y-o-y in November.
Statistics Canada also releases retail sales numbers for Calgary and Edmonton. The data shows some divergence between regions. As such, retail sales grew strongly in Calgary (+6.1% y-o-y) and the rest of the province (+11.2% y-o-y), while the increase was more modest in Edmonton (+1.2% y-o-y).
The core measure shows a similar regional disparity, with sales increasing by 3.3% y-o-y in Calgary and 6.2% y-o-y in the rest of the province, while it rose a subdued 0.7% y-o-y in Edmonton.
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Independent Opinion
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