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

Bottom line

Retail sales posted a solid increase in December. However, the preliminary estimate for January points to a decline in spending at the start of 2024. Nevertheless, this suggests that retail sales in the fourth quarter were robust and boosted consumer spending and GDP.

However, the expected decline in January could be a sign that the strength seen in late 2023 was 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 0.6 y-o-y in December, while core retail sales were down (-1.6% 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 in PEI, Quebec and New Brunswick remains robust, even once adjusted for population growth, while it is weak in Saskatchewan, Manitoba, PEI and Alberta. There are some links between the strength in consumer spending and indebtedness and insolvencies, with more robust sales in provinces with lower indebtedness and insolvencies (Quebec and most 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 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 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 rose 0.9% m-o-m in December, slightly stronger than expected. Compared to the same month last year, retail sales increased 2.9% y-o-y. Statistics Canada also reports that retail sales are estimated to have declined 0.4% m-o-m in January based on a preliminary estimate.

Monthly sales were higher in 5 out of 9 subsectors. Spending at motor vehicle and parts dealers were the main source of increase (+1.9% m-o-m), followed by general merchandise retailers (+2.8% m-o-m), and food and beverage retailers (+1.5% m-o-m). These higher sales were partly offset by lower spending on furniture, electronics, and appliances (-2.7% m-o-m) and health and personal stores (-1.5% m-o-m).

Core retail sales, which excludes motor vehicles and parts and gasoline stations, increased 0.5% 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 0.8% in December (+2.2% y-o-y). Core retail sales are estimated to have increased by 0.4% on the month (+1.3% y-o-y).

Almost all provinces saw higher sales in December, except for PEI (-3.3% m-o-m). The biggest increases on the month were in B (+1.5% m-o-m), Ontario (+1.3% m-o-m), Nova Scotia (+1.3% m-o-m), and Saskatchewan (+1.0% m-o-m).

Focusing on the y-o-y changes, the value of retail sales increased the most in New Brunswick (7.1% y-o-y), BC (3.9% y-o-y), Quebec (+3.4% y-o-y), and Ontario (+2.9% y-o-y). On the flip side, sales have declined compared to last year in Manitoba (-0.8% y-o-y), Saskatchewan (-0.7% m-o-m), and Newfoundland (-0.1% 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), Alberta (+4.0% y-o-y), Manitoba (+1.9% y-o-y), and Ontario (+1.3% y-o-y). Core spending decreased in PEI (-5.7% y-o-y), Quebec (-3.2% y-o-y), Newfoundland (-3.2% y-o-y), and  Saskatchewan (-2.8% y-o-y).

In volume terms, retail sales increased the most in New Brunswick (+6.4% y-o-y), BC (+3.1% y-o-y), Quebec (+2.7% y-o-y), and Ontario (+2.2% y-o-y). They declined in Manitoba (-1.5% y-o-y), Saskatchewan (-1.3% y-o-y), and Newfoundland (-0.8% y-o-y).

In Alberta, retail sales rose 0.9% m-o-m in December (+2.4% y-o-y). Higher sales at food and beverage and general merchandise retailers were the main source of gains on the month, while a decline at motor vehicles and parts dealers was the main source of drag. As a result, we estimate that core retail sales increase by 3.6% m-o-m (+6.8% y-o-y) in December. Although there are no official volume details at the provincial level, we estimate that retail sales volumes in the province increased by 0.8% m-o-m (+1.7% y-o-y).

Statistics Canada also releases retail sales numbers for Calgary and Edmonton. The data shows some convergence between regions compared to previous months. As such, retail sales in Calgary rose by 1.1% y-o-y, the rest of the provinces by 1.1% y-o-y, while Edmonton was slightly weaker (+0.06% y-o-y). However, the core measure shows that spending increased at a faster pace in Edmonton (+5.3% y-o-y) and the rest of the province (+4.9% y-o-y) than in Calgary (+1.9% 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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