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

Bottom line 

Retail sales posted a decline in November, after two months of robust gains. The details indicate that the weaker was mainly from a few categories. Importantly, the preliminary estimate for December points to a strong rebound in spending at the end of the year.  This suggests that retail sales in the fourth quarter are likely to be robust and provide a boost to consumer spending and GDP and a higher starting point for 2024.

The strength at the end of 2023 may prove temporary as it remains driven by population growth and consumers remain cautious. As such, we estimate that retail sales adjusted for inflation and population growth were lower by 0.1 y-o-y in November, while core retail sales were down (-2.0% y-o-y). All 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. At one end, consumer spending in PEI, Quebec and New Brunswick remains robust, even once adjusted for population growth, while it is weak in Saskatchewan, Manitoba and Nova Scotia. There is some correlation between the strength in consumer spending and indebtedness and insolvencies, with more robust sales in provinces with lower indebtedness and insolvencies (Quebec and Atlantic provinces). In contrast, consumer spending underperforms in provinces with higher debt levels and insolvencies (Ontario, BC, Alberta, Saskatchewan and Manitoba).

The outlook for retail sales and consumer spending more broadly remains tilted to the downside as consumers continue to face an erosion in purchasing power due to high inflation and the impact of rising interest rates on debt payments. The strong population growth and the resilience in the labour market so far are 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 and the economy more broadly (see Will it be a hard landing or a soft landing? The labour market will decide).

Retail sales declined 0.2% m-o-m in November, slightly weaker than expected. Compared to the same month last year, retail sales increased 1.8% y-o-y. Statistics Canada also reports that retail sales are estimated to have jumped 0.8% m-o-m December based on a preliminary estimate.

Monthly sales were lower in only 4 out of 9 subsectors. Spending at food and beverage stores (-1.4% m-o-m) was the main source of the decline, followed by general merchandise (-1.8% m-o-m), and sporting goods, hobby, books and others (-0.3% m-o-m). These lower sales were partly offset by higher spending at clothing, footwear and accessories stores (+1.5% m-o-m) and furniture, electronics and appliances (+1.0% m-o-m).

Core retail sales, which excludes motor vehicles and parts and gasoline stations, declined 0.6% m-o-m (+2.1% 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 down by 0.2% in November (+2.7% y-o-y). Core retail sales are estimated to have decreased by 0.7% on the month (+0.8% y-o-y).

Most provinces saw lower sales in November. The biggest decreases on the month were in Saskatchewan (-2.2% m-o-m), Quebec (-1.4% m-o-m), Nova Scotia (-0.9% m-o-m), and Newfoundland (-0.6% m-o-m). On the flip side, sales increased the most in PEI (+1.8% m-o-m), BC (+0.7%), and Alberta (+0.7% m-o-m).

Focusing on the y-o-y changes, the value of retail sales increased the most in New Brunswick (5.7% y-o-y), PEI (+5.2% y-o-y), Quebec (+2.8% y-o-y), and Alberta (+2.5% y-o-y). On the flip side, sales have declined compared to last year in Saskatchewan (-2.0% m-o-m), Nova Scotia (-1.1% m-o-m) and Manitoba (-0.8% y-o-y).

Looking at the value of core retail sales, we estimate they increased the most in Alberta (+5.4% y-o-y), New Brunswick (+4.6% y-o-y), Ontario (+2.8% y-o-y), and BC (+2.8% y-o-y). Core spending decreased in Saskatchewan (-6.3% y-o-y), Newfoundland (-2.2% y-o-y), and PEI (-2.0% m-o-m).

In volume terms, retail sales increased the most in New Brunswick (+6.6% y-o-y), PEI (+6.1% y-o-y), Quebec (+3.7% y-o-y), and Alberta (+3.4% y-o-y). They declined in Saskatchewan (-1.1% y-o-y) and Nova Scotia (-0.2% y-o-y).

In Alberta, retail sales rose 0.6% m-o-m in November (+2.5% y-o-y). Higher sales at food and beverage retailers, building material and gardening centre, and clothing and footwear stores were the main source of gains on the month, while general merchandise stores were the main source of drag. As a result, we estimate that core retail sales increase by 0.9% m-o-m (+6.6% 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 increased by 0.6% m-o-m (+3.4% y-o-y).

Statistics Canada also releases retail sales numbers for Calgary and Edmonton. The data shows some divergences between regions. As such, retail sales in Calgary rose by 4.0% y-o-y and more modestly in the rest of the provinces (+2.8% y-o-y) and Edmonton (+1.1% y-o-y). However, the core measure shows that spending increased at a more similar pace across the province, with +6.2% y-o-y in Calgary, +5.8% y-o-y for Edmonton and 4.0% y-o-y for the rest of the province. This suggests that weak motor vehicle sales in Edmonton explain the differences.


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Independent Opinion

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