Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom Line
Retail sales declined in July, the first monthly decline this year. The fall was mainly the result of a drop in sales at gasoline stations, as both selling prices and volumes decreased. Nevertheless, even excluding gasoline stations, retail sales were also lower in July, suggesting broad weakness in retail sales. So far this year, retail sales have mainly increased because of inflation. In real terms, or adjusted for inflation, retail sales are little changed. This suggests that consumers are not increasing their consumption level.
The outlook for retail sales and consumer spending more broadly remains uncertain and 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 in 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 outperformed slightly relative to the rest of the country. We note that core retail sales, excluding motor vehicle dealers and gasoline stations, have been stronger than in other parts of Canada in recent months. It is too soon to say whether this situation will persist. However, the positive terms-of-trade coming from higher commodity prices, notably oil, is likely acting as a tailwind on the economy. 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 employment gains relative to the rest of the province in the metropolitan areas.
Retail sales dropped 2.5% m-o-m in July, the first monthly decline since December. Compared to the same month last year, retail sales rose +8.0% y-o-y. Statistics Canada also reports that retail sales increased by 0.4% m-o-m in August based on a preliminary estimate.
Monthly sales decreased in 9 out of 11 subsectors. On the month, the reduction in retail sales resulted mainly from lower sales at gasoline stations (+14.2% m-o-m), clothing and footwear (-3.3% m-o-m), and furniture, electronics and appliances stores (-3.2% m-o-m). Core retail sales, which excludes motor vehicles and parts and gasoline stations, declined by 0.9% m-o-m (+8.2% y-o-y).
In volume terms (i.e. adjusted for inflation), retail sales decreased by 2.0% on the month (-0.1% y-o-y) and core retail sales are down by 1.2% in July (+2.2% y-o-y). The decline in volume shows the rise in retail sales is mostly driven by higher inflation, not higher spending.
In Alberta, retail sales increased by 0.8% m-o-m in July (+9.9% y-o-y). Retail sales were mixed across sectors. There were declines in sales at furniture, electronics and appliances stores (-8.5% m-o-m), gasoline stations (-5.6%), and motor vehicles and parts dealers (-2.0% m-o-m). Those declines were offset by gains in general merchandise store (+2.8% m-o-m) and food stores (+0.4% m-o-m).
Core retail sales increased by 3.8% m-o-m (+8.2% 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 rose by 1.2% m-o-m (+1.6% 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 10.3% y-o-y (9.5% YTD), while its was weaker in Calgary (+7.1% y-o-y and 6.8% YTD) and the rest of the province (+7.6% y-o-y, +0.8% YTD). The relative volatility in the data make it hard to determine the exact cause of divergences in retail sales between regions. However, the recent employment reports suggest that the recovery in the labour market has been stronger 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
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