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

Bottom line

Retail sales posted a small decline in January after a solid gain the month before. The preliminary estimate for February points to a small increase in spending. Nevertheless, with the strong end to the fourth quarter and continued resilience in the first two months of 2024, it is estimated that consumer spending should make a solid contribution to Q1 GDP.

However, while retail sales are showing resilience, they 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 1.6 y-o-y in January, while core retail sales were down (-1.9% 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).

There are some regional divergences. Consumer spending is generally stronger in Atlantic Canada and Quebec, even once adjusted for population growth, while it is weak in Western provinces. There are some links 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). In contrast, consumer spending underperforms in provinces with higher debt levels and insolvencies (BC, Alberta, Saskatchewan and Manitoba). Ontario has seen some improvement recently, breaking away from this relationship.

The outlook for retail sales and consumer spending more broadly remains subdued as consumers continue to face the impact of high inflation on 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 to 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 0.3% m-o-m in January, slightly stronger than expected. Compared to the same month last year, retail sales rose 0.9% y-o-y. Statistics Canada also reports that retail sales are estimated to have increased 0.1% m-o-m in January based on a preliminary estimate.

Monthly sales were lower in only 3 out of 9 subsectors. Spending at motor vehicle and parts dealers was the main source of decrease (-2.4% m-o-m), followed by food and beverage retailers (-0.9% m-o-m), and clothing and footwear retailers (-0.5% m-o-m). These lower sales were partly offset by higher spending at sporting goods, hobby, books and other stores (+3.0% m-o-m), building material and garden centres (+2.2% m-o-m), and furniture, electronics, and appliances stores (+1.6% m-o-m).

Core retail sales, which excludes motor vehicles and parts and gasoline stations, increased 0.2% m-o-m (+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 were up by 0.2% in January (+1.5% y-o-y). Core retail sales are estimated to have increased by 0.6% on the month (+1.2% y-o-y).

At the province level, retail sales were mixed in January. Sales declined the most in BC (-2.2% m-o-m), Saskatchewan (-1.1% m-o-m), and Quebec (-1.0% m-o-m), while they increased the most in PEI (+2.6% m-o-m), New Brunswick (+2.2% m-o-m), Nova Scotia (+1.2% m-o-m) and  Ontario (+0.5% m-o-m)

Focusing on the y-o-y changes, the value of retail sales increased the most in New Brunswick (8.0% y-o-y), Ontario (+3.1% y-o-y), Quebec (+1.3% y-o-y), and PEI (+1.2% y-o-y). On the flip side, sales have declined compared to last year in Saskatchewan (-4.9% m-o-m), Manitoba (-3.9% y-o-y), Newfoundland (-1.8% y-o-y), and BC (-1.6% y-o-y).

Looking at the value of core retail sales, we estimate they increased the most in New Brunswick (+4.6% y-o-y), Ontario (+6.5% y-o-y), Nova Scotia (+3.3% y-o-y), and Alberta (+2.9% y-o-y).

In volume terms, we estimate retail sales increased the most in New Brunswick (+10.2% y-o-y), Ontario (+3.8% y-o-y), Quebec (+1.9% y-o-y), and PEI (+1.8% y-o-y). They declined in Saskatchewan (-4.3% y-o-y), Manitoba (-3.3% y-o-y), Newfoundland (-1.2% y-o-y), and BC (-1.0% y-o-y).

In Alberta, retail sales declined 0.6% m-o-m in January (-1.4% y-o-y). Lower sales at food and beverage retailers and sporting goods, hobby and reading stores seem to be the main source of weakness, while sales at motor vehicle and parts dealers and at gasoline stations were the main sources of increase. As a result, we estimate that core retail sales decrease by 5.5% m-o-m (+2.9% y-o-y) in January. Although there are no official volume details at the provincial level, we estimate that retail sales volumes in the province were flat m-o-m in January (-0.8% 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 rose by 2.6% y-o-y and by 0.7% y-o-y in the rest of the provinces, while Edmonton saw a decline (-1.8% y-o-y). 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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