Retail sales rebound, but will it be sustained?

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

Bottom line

Retail sales rose more than expected in July, and the preliminary estimate suggests that they increased again in August, which follows months of sluggishness. The stronger increases suggest that retail sales in Q3 could be the strongest since 2023Q4 and that GDP for July and Q3 is likely to be stronger than initially expected. Nevertheless, despite this increase, the level of core retail sales in volume has been mostly unchanged since Spring 2022 (Fig 1).

Retail sales have been mostly driven by population growth in recent years. However, the increase in retail sales in both July and August points to an increase in spending per person. Despite this strength, we estimate that retail sales adjusted for inflation and population growth were lower by 1.1% y-o-y in July, while core retail sales were also down (-3.5% y-o-y).

The strength in retail sales in July was broad-based regionally, with higher sales in 8 out of 10 provinces. However, many provinces are estimated to have seen a decline (y-o-y) or little change in core spending per capita adjusted for inflation and population, suggesting that individual households’ spending continues to be restraint (see Fig 4). We noted that there is a link between the strength in consumer spending, indebtedness and insolvencies, with much weaker retail sales in provinces with higher debt and insolvencies (Ontario and provinces westwards except for Saskatchewan).

It is unclear whether the stronger retail sales seen in recent months will be sustained as consumers continue to adapt to the shock to their purchasing power. While the recent and upcoming rate cuts are expected to provide some relief, this relief will be marginal. As we have written in the past, if it was not for population growth, the Canadian economy would have been in a recession because of the decline in spending per person (see It’s a “Me-cession”, not a recession). While better consumer spending will support growth in Q3, it is unlikely to have a big impact on the BoC thinking, as it remains unclear whether it will be sustained.

Retail sales rose by 0.9% m-o-m in July, stronger than expectations. 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 0.5% m-o-m in June based on a preliminary estimate.

Monthly sales were higher in 7 out of 9 subsectors. The only decreases were in building material and gardening centres (-1.4% m-o-m) and gasoline stations (-0.6% m-o-m). Sales at motor vehicles and parts dealers were the main source of growth, increasing 2.2% m-o-m. Nevertheless, there were also stronger sales in health and personal care (+1.2% m-o-m), clothing, footwear and accessories (+1.1% m-o-m), general merchandise retailers (+0.8% m-o-m), and food and beverage retailers (+0.8% m-o-m).

Core retail sales, which excludes motor vehicles and parts and gasoline stations, rose 0.6% in July (+0.5% y-o-y).

In volume terms (i.e. adjusted for inflation), retail sales jumped higher by  1.0% in July (+2.2% y-o-y). Core retail sales are estimated to have increased 0.6% on the month (-0.1% y-o-y).

At the regional level, all provinces saw higher retail sales in July, except for Newfoundland (-0.6% m-o-m) and Ontario (-0.2% m-o-m). Sales increased the most in Saskatchewan (+3.0% m-o-m), Manitoba (+2.7% m-o-m), Alberta (+2.0% m-o-m), and Nova Scotia (+1.6% m-o-m).

Focusing on the y-o-y changes, the value of retail sales increased in most provinces, except in Ontario (-0.7% y-o-y), BC (-0.5% y-o-y) and PEI (-0.2% y-o-y). Retail sales rose the most in Saskatchewan (+6.3% y-o-y), Alberta (+4.1% y-o-y), Newfoundland (+4.0% y-o-y), and Nova Scotia (+3.9% y-o-y).

Looking at the value of core retail sales, we estimate they rose the most in Saskatchewan (+5.4% y-o-y), Alberta (+4.6% y-o-y), Manitoba (+2.7% y-o-y), and BC (+2.3% y-o-y). However, they declined in Newfoundland (-2.9% y-o-y), Nova Scotia (-2.0% y-o-y), Ontario (-1.7% y-o-y), and Quebec (-1.2% y-o-y).

In volume terms, we estimate retail sales increased in all provinces, led by Saskatchewan (+7.6% y-o-y), Alberta (+5.4% y-o-y), Nova Scotia (+5.2% y-o-y), and Newfoundland (+5.2% y-o-y). On the flip side, they increased the least in Ontario (+0.5 y-o-y), BC (+0.7% y-o-y), PEI (+1.1% y-o-y), and Quebec (+2.4% y-o-y).

In Alberta, retail sales jumped higher by 2.0% m-o-m in July (+4.1% y-o-y). A surge in sales at motor vehicles and parts dealers was a big source of increase in retail sales. Nevertheless, there was also strength in general merchandise, gasoline stations, health care and personal care, and building material and gardening centres. However, we estimate that core retail sales decreased by 1.6% m-o-m (+4.6% y-o-y) in July. Although there are no official volume details at the provincial level, we estimate retail sales volumes in the province rose 2.0% y-o-y in July.

Statistics Canada also releases retail sales numbers for Calgary and Edmonton. The data shows some convergence between regions, after a period of weakness in Calgary. As such, retail sales in Calgary increased by 5.5% y-o-y while they rose by 5.5% y-o-y in Edmonton and 5.7% y-o-y in the rest of the province.

The core measure continues to show some regional disparities, with sales increasing by 1.6% y-o-y in Calgary, while they rose by 6.6% y-o-y in Edmonton and 5.6% y-o-y in the rest of the province.

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