Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
Retail sales rose slightly more than expected in March. The increase is mainly the result of a surge in motor vehicles sales. Nevertheless, there were also higher sales at furniture and appliances stores, and at building and gardening centres. The strength in retails sales is likely the result of consumers bringing forward some of their purchases ahead of potentially higher prices due to the trade tensions.
The preliminary estimate suggests that retails sales will remain robust in April, increasing by 0.5% m-o-m. The continued strength is somewhat surprising considering the drop in consumer confidence in recent months. However, it is likely a sign that consumers are continuing to purchase goods in anticipation that prices will increase later due to the US tariffs.
Retail sales per person, adjusted for inflation, have been mostly unchanged since the beginning of the year, after bottomed out last summer. This indicated that the increase in retail sales is no longer solely due to population growth. We estimate that retail sales adjusted for inflation and population growth were higher by 0.3% y-o-y in March and core retail sales flat y-o-y. Both measures are only marginally above their pre-GST holiday level. We continue to note a link between the strength in consumer spending, indebtedness, and insolvencies, with much weaker retail sales per person in provinces with higher debt and insolvencies, especially in Ontario and BC. We also note some weakness in Quebec, which could suggest that trade war uncertainty is also likely holding back spending per capita.
The robust consumer spending in March and April provides a stronger handover to consumer spending in Q2 and means that economic activity could be slightly better than expected. However, since most of this strength is likely spending being brought forward, it will likely prove temporary. Moreover, it continues to be reasonable to believe that the impact of the US tariffs is simply delayed and that consumer spending will weaken, especially as the labour market weakens.
Today’s report suggests that consumer spending may be more resilient than initially expected. However, it is unlikely to change the Bank of Canada’s view of the economy ahead of the June meeting, especially since the strength in consumer spending is likely to be seen as temporary. The BoC needs to balance the deflationary and inflationary impacts of the trade war. The weakening of the labour market in recent months will be a drag on growth and inflation later this year. However, the recent CPI report suggests an increase in underlying inflationary pressures. Whether the BoC cut at the June meeting remains a close call, but a cut seems slightly more likely.
Retail sales grew 0.8% m-o-m in March, stronger than expected, following a strong decrease since the beginning of the year. Compared to the same month last year, retail sales rose 5.6% y-o-y. Statistics Canada also reports that retail sales are estimated to have increase 0.5% m-o-m in April based on a preliminary estimate.
Monthly sales were mixed across subsectors. The main increases were in spending on motor vehicles and parts (+4.8% m-o-m), building material and garden centers (+2.6% m-o-m), clothing, footwear and accessories (+2.6% m-o-m), and furniture, electronics and appliances (+2.1% m-o-m). These increases were partly offset by declines in spending at gasoline stations (-6.5% m-o-m), general merchandise retailers (-2.7% m-o-m), and food and beverage retailers (0.2% m-o-m).
Core retail sales, which exclude motor vehicles and parts and gasoline stations, rose 0.2% m-o-m in March (+5.5% y-o-y).
In volume terms (i.e. adjusted for inflation), retail sales rose 0.9% in March (+3.3% y-o-y). Core retail sales are estimated to have increased 0.1% m-o-m (+2.9% y-o-y).
At the regional level, headline retail sales increased in most provinces. The most significant increases were in Nova Scotia (+2.7% m-o-m), Quebec (+1.6 % m-o-m), New Brunswick (+1.3% m-o-m), and Newfoundland (+0.9% m-o-m). Retail sales decreased the most in Manitoba (-1.6% m-o-m) and Saskatchewan (-0.5% m-o-m).
Focusing on the y-o-y changes, the value of retail sales increased in all provinces, led by Newfoundland (+11.3% y-o-y), Saskatchewan (+8.2% y-o-y), Alberta (+7.8% y-o-y), and Manitoba (+7.4% y-o-y). They increased the least in PEI (+1.5% y-o-y), BC (+4.7% y-o-y), and Quebec (+4.8% y-o-y).
Looking at the value of core retail sales, they are also higher compared to last year in all provinces, with the biggest increases in Ontario (+4.9% y-o-y), Quebec (+4.7% y-o-y), Saskatchewan (+4.3% y-o-y), Alberta (+3.9% y-o-y), and Manitoba (+3.4% y-o-y). They decreased in PEI (-0.5% y-o-y).
In volume terms, we estimate retail sales increased in almost all provinces, led by Newfoundland (+8.9% y-o-y), Saskatchewan (+5.9% y-o-y), Alberta (+5.5% y-o-y), Manitoba (+5.1% y-o-y), and New Brunswick (+5.1% y-o-y). They decreased in PEI (-0.7% y-o-y).
In Alberta, retail sales rose 0.8% m-o-m in March (+7.8% y-o-y). A increase in sales on motor vehicles and parts (+7.7% m-o-m), furniture, electronics and appliances (+4.0% m-o-m), and building material and garden centers (+1.5% m-o-m). These were partly offset by lower sales at gasoline stations (-9.9% m-o-m), general merchandise retailers (-5.0% m-o-m), and health and personal care stores (-1.6% m-o-m).
As a result, we estimate that core retail sales decreased by 0.2% m-o-m (+3.9% y-o-y) in March. Although there are no official volume details at the provincial level, we estimate retail sales volumes in the province rose by 5.4% y-o-y in March.
Statistics Canada also releases retail sales numbers for Calgary and Edmonton. The data shows a weaker growth compared to the rest of the regions. As such, retail sales grew in Calgary (+6.0% y-o-y), Edmonton (+4.7% y-o-y), and the rest of the province (+12.1% y-o-y).
The core measure also shows some regional disparity, with sales being low in Calgary (+3.6% y-o-y) and Edmonton (+1.1% y-o-y) but rose strongly in the rest of the province (+16.0% y-o-y).
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Independent Opinion
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