Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud. 

Bottom line

Retail sales posted another decline in February and the preliminary estimate for March points to unchanged spending. It is becoming evident that the solid end of 2024 was unsustainable. Nevertheless, it is estimated that consumer spending should make a solid contribution to Q1 GDP thanks to the strong starting point.

Retail sales remain driven by population growth, and consumers remain cautious. As such, we estimate that retail sales adjusted for inflation and population growth were lower by 2.2% y-o-y in February, while core retail sales were down (-1.5% y-o-y). Most provinces are estimated to have seen a decline in core spending per capita adjusted for inflation, suggesting that individual households are reducing their spending (see Fig 4).

Some regional divergences noted previously are gradually disappearing. We noted that there was a link between the strength in consumer spending and indebtedness and insolvencies, with more robust sales in provinces with lower debt and insolvencies (Quebec and most Atlantic provinces). However, this is no longer the case.

The outlook for retail sales and consumer spending more broadly remains subdued as consumers continue to adapt to the shock to their purchasing power and rising interest rates on debt payments. The strong population growth and the resilience in the labour market so far are a source of support for household spending. A weakening of the labour market, especially job losses, could lead to significant underperformance in consumer spending and the economy more broadly (see Will it be a hard landing or a soft landing? The labour market will decide).

Retail sales declined 0.1% m-o-m in February, weaker than expected. Compared to the same month last year, retail sales rose 1.2% y-o-y. Statistics Canada also reports that retail sales are estimated to have been unchanged in March based on a preliminary estimate.

Monthly sales were lower in only 5 out of 9 subsectors. Spending at gasoline stations was the main source of the decline in retail sales (-2.2% m-o-m), followed by furniture, electronics and appliances (-1.5% m-o-m), and clothing, footwear and accessories (-1.0% m-o-m). These lower sales were partly offset by higher sales at general merchandise stores (+1.1% m-o-m) and motor vehicles and parts dealers (+0.5% m-o-m) were the main source of gains.

Core retail sales, which excludes motor vehicles and parts and gasoline stations, were unchanged on the month (+2.4% y-o-y). The focus on core retail sales is important in the current context, as changes in gasoline prices are leading to volatile sales at gasoline stations, and better motor vehicle inventories are helping satisfy pent-up demand in the sector.

In volume terms (i.e. adjusted for inflation), retail sales declined 0.3% in February (+0.9% y-o-y). Core retail sales are estimated to have been flat on the month (+1.7% y-o-y).

At the province level, most provinces saw lower retail sales in February. Sales declined the most in Nova Scotia (-1.5% m-o-m), New Brunswick (-1.3% m-o-m), and Alberta (-1.1% m-o-m). On the flip side, there were solid increases in Newfoundland (+3.5% m-o-m), Saskatchewan (+1.7% m-o-m), and BC (+1.2% m-o-m).

Focusing on the y-o-y changes, the value of retail sales increased the most in Newfoundland (+4.6% y-o-y), Saskatchewan (+3.9% y-o-y), Nova Scotia (+3.2% y-o-y), and BC (+2.6%). On the flip side, sales have declined compared to last year in Alberta (-2.1% y-o-y), PEI (-1.7% y-o-y), New Brunswick (-0.5% y-o-y), and Quebec (-0.1% y-o-y)

Looking at the value of core retail sales, we estimate they increased the most in Newfoundland (+11.1% y-o-y), Saskatchewan (+6.9% y-o-y), Ontario (+6.8% y-o-y), and Alberta (+6.7% y-o-y). However, they declined in PEI (-0.6% y-o-y).

In volume terms, we estimate retail sales increased the most in Newfoundland (+4.4% y-o-y), Saskatchewan (+3.7% y-o-y), Nova Scotia (+3.0% y-o-y), and BC (+2.5% y-o-y). They declined in Alberta (-2.2% y-o-y), PEI (-1.8% y-o-y), New Brunswick (-0.6% y-o-y), and Quebec (-0.2% y-o-y).

In Alberta, retail sales declined 1.1% m-o-m in February (-2.1% y-o-y). Lower sales at motor vehicles and parts dealers, furniture, electronics and appliances stores, and clothing, footwear and accessories stores were the main source of weakness, while higher spending at food and beverage stores, general merchandise retailers, and sporting goods, hobby, books and others were the main sources of increase. As a result, we estimate that core retail sales decreased by 1.0% m-o-m (+6.7% y-o-y) in February. Although there are no official volume details at the provincial level, we estimate that retail sales volumes in the province declined 1.3% m-o-m in February (-2.2% y-o-y).

Statistics Canada also releases retail sales numbers for Calgary and Edmonton. The data shows some divergence between regions. As such, retail sales in Calgary declined by 1.8% y-o-ym while they increased by 2.6% y-o-y in Edmonton and 3.5% y-o-y in the rest of the province.

However, the core measure shows that spending increased in all areas, led by the rest of the province (+3.7% y-o-y), followed by Edmonton (+2.9% y-o-y) and Calgary (+2.2% y-o-y). This suggests that weak motor vehicle sales in Edmonton explain the differences.


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Independent Opinion

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