Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Retail sales decreased modestly in August and the preliminary estimate suggests that sales were flat in September. After some strength in at the beginning of the year, there are clear signs that consumer spending is stalling. The recent data suggests that consumer spending will have little to no contribution to growth in the third quarter and likely for the rest of 2023.
The moderation in consumption is even more evident when adjusting for inflation and population growth, with an estimated decline nationally of 1.3% y-o-y for headline retail sales and by 2.9% y-o-y for core retail sales. All provinces are estimated to have seen a decline in spending per capita adjusted for inflation, suggesting that individual households are reducing their spending.
There are some regional divergences. At one end, consumer spending in Alberta, PEI, Nova Scotia and New Brunswick remains strong, even once adjusted for population growth, while it is weak in Saskatchewan, Manitoba, Ontario, BC; the latter two regions highly sensitive to interest rate increases as they have the highest level of household indebtedness and highly unaffordable housing market.
The outlook for retail sales and consumer spending more broadly remains tilted to the downside. Consumers’ finances continue to be squeezed by an erosion in purchasing power due to high inflation and rising interest rates (see The Great Consumer Squeeze for more details on how those factors affect households). The resilience in the labour market, with continued robust job growth, is likely a source of support to household spending. A weakening of the labour market, especially job losses, could lead to significant underperformance in consumer spending.
Retail sales declined 0.1% m-o-m in August. Compared to the same month last year, retail sales increased 1.6% y-o-y. Statistics Canada also reports that retail sales are estimated to have been unchanged in September based on a preliminary estimate.
Monthly sales were lower in 6 out of 9 subsectors. The biggest decrease on the month were at food and beverage retailers (-1.2% m-o-m), Sporting goods, hobby, books retailers (-1.1% m-o-m), and motor vehicle and parts dealers (-0.9% m-o-m). These declines were partly offset by higher spending at gasoline stations (+2.8% m-o-m) and health care and personal care stores (+1.2% m-o-m).
Core retail sales, which excludes motor vehicles and parts and gasoline stations, were 0.3% m-o-m lower (+2.1% y-o-y). The focus on core retail sales is important in the current context, as changes gasoline prices are leading to a sharp decline in sales at gasoline stations (-9.3% y-o-y)
In volume terms (i.e. adjusted for inflation), retail sales decreased by 0.7% in August (+1.1% y-o-y), a third consecutive decline. Core retail sales are estimated to have increased by 0.6% on the month (-0.4% y-o-y).
By provinces, there are some important divergences. Focusing on the y-o-y changes, the value of retail sales increased the most in PEI (+8.2% y-o-y), New Brunswick (+5.4% y-o-y), Quebec (+3.5% y-o-y), and Nova Scotia (+2.5% y-o-y). On the flip side, retail sales are lower in Saskatchewan (-1.9% y-o-y), BC (-1.5% y-o-y), Manitoba (-0.1% y-o-y), and Newfoundland (-0.1% y-o-y).
Looking at the value of core retail sales, we estimate they increased the most in Alberta (+7.4% y-o-y), PEI (+7.1% y-o-y), New Brunswick (+7.1% y-o-y), and Nova Scotia (+6.4% y-o-y). Core spending decreased increased the least in Saskatchewan (+0.6% y-o-y), Manitoba (+0.8% y-o-y), BC (+1.6% y-o-y), and Ontario (+2.2% y-o-y).
In Alberta, retail sales rose 0.9% m-o-m in August (+2.3% y-o-y). The increase in headline retail sales was relatively broad-based with increases in every category, except for sporting goods, hobby, books retailers. As a result, we estimate that core retail sales rose by 2.4% m-o-m (+7.4% y-o-y) in July. Although there are no official volume details at the provincial level, we estimate that retail sales volumes in the province decreased by 0.4% m-o-m (+1.8% y-o-y).
Statistics Canada also releases retail sales numbers for Calgary and Edmonton. The data continue to show some divergences between regions. As such, retail sales in Calgary rose by 5.4% y-o-y in August, while it decreased 1.5% y-o-y in Edmonton and increased by 5.1% y-o-y in the rest of the province. The core measure also shows stronger spending in Calgary, with the city up 9.8% y-o-y compared to 5.8% and 6.7% for Edmonton and the rest of the province, respectively. Stronger population growth in Calgary than Edmonton over the past year and the rest of the province could explain part of the outperformance.
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