Retail sales are slowly easing

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

Bottom line

Retail sales declined in November but the preliminary estimate suggests some reversal in December. So far this year, it is clear that retail sales have mainly increased because of inflation. In real terms, or adjusted for inflation, retail sales peaked in May and have since been on a declining trend, suggesting that consumers are not increasing their consumption level.

The outlook for retail sales and consumer spending more broadly remains tilted to the downside. On one side, consumers’ finances are being 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). On the other side, households have accumulated a significant amount of saving during the pandemic. So far, it seems households are using their accumulated savings to maintain their spending levels and compensate for the higher cost of living rather than increase it.

In Alberta, retail sales have outperformed slightly relative to the rest of the country over the past year. It is too soon to say whether this situation will persist However, the tailwinds from high energy price and a stronger labour market may explain the better spending in Alberta. We also note continued divergence in retail sales between the metropolitan areas and the rest of the province, with sales stronger in Calgary and Edmonton so far this year. This could be explained by more robust population gains relative to the rest of the province in the metropolitan areas.

Retail sales declined 0.1% m-o-m in November. Compared to the same month last year, retail sales rose +5.2% y-o-y. Statistics Canada also reports that retail sales increased by 0.5% m-o-m in December based on a preliminary estimate.

Monthly sales decreased in 6 out of 11 subsectors. On the month, the easing in retail sales resulted mainly from lower sales at building material and gardening stores (-3.8% m-o-m) and food stores (-1.6% m-o-m). These declines were partly offset by a rise in spending at motor vehicle and parts dealers (+1.4% m-o-m) and gasoline stations (+2.2% m-o-m). Core retail sales, which excludes motor vehicles and parts and gasoline stations, dropped by 1.1% m-o-m (+4.0% y-o-y).

In volume terms (i.e. adjusted for inflation), retail sales decreased by 0.4% in December (-0.2% y-o-y) and core retail sales are dropped by 1.7% on the month (-1.0% y-o-y). The decrease in volume shows that higher inflation was a major source of growth in retail sales.

In Alberta, retail sales declined slightly in November (+6.0% y-o-y). Retail sales were mixed across sectors. Big increase at motor vehicle and parts dealers (+3.4% m-o-m), gasoline stations (+1.8% m-o-m), Health and personal care stores (+11.9% m-o-m), and clothing and footwear stores (+11.9% m-o-m) were partly offset by declines at building and gardening centres (-9.1% m-o-m), food stores (-1.8% m-o-m), and furniture, electronic and appliance stores (-1.3% m-o-m).

Core retail sales declined by 2.0% m-o-m (+6.2% y-o-y) in November. 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 (+0.7% y-o-y).

Statistics Canada has recently started to release retail sales numbers for Calgary and Edmonton. The data shows some small divergence between regions. As such, retail sales in Edmonton increased 10.0% y-o-y (10.7% YTD), while its was weaker in Calgary (+5.2% y-o-y and 6.0% YTD) and the rest of the province (+3.7% y-o-y, +2.6% YTD). The relative volatility and lack of details in the data make it hard to determine the exact cause of divergences in retail sales between regions. However, stronger population growth 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