Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
Retail sales declined more than expected in January and the preliminary estimate for February suggests another easing in retail spending. Despite this correction, the level of sales remained above its November level, showing that the GST holiday continued to boost sales.
Consumer spending was improving before the tax break. Retail sales per person, adjusted for inflation, bottomed out last summer, indicating that the increase in retail sales was no longer solely due to population growth. Nevertheless, the spending volume per capita remains about 4.1% below its recent peak (Fig. 2). We estimate that retail sales adjusted for inflation and population growth were lower by 1.2% y-o-y in January, while core retail sales were down more modestly (-0.5% y-o-y). Both measures remain 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, which saw a drop of 1.6% m-o-m in retail sales per person.
The preliminary estimate for February, combined with the sharp decline in consumer confidence in recent months, suggests that consumer spending is slowing significantly and will likely become a drag on growth. Growth in Canada is slowing fast due to the extreme uncertainty created by the US tariff threats.
It remains unclear how much the BoC will be able to support the economy, given that inflation is currently at the upper band of its target and recent dynamics indicating price increases are above 3%. The BoC will need to balance the deflationary and inflationary impacts of the trade war, but recent comments from Governor Macklem suggest that the BoC will likely prioritize inflation over supporting growth.
Retail sales eased 0.6% m-o-m in January, weaker than expected, following a strong increase in December. Compared to the same month last year, retail sales rose 4.2% y-o-y. The GST holiday boosted retail sales in December, and some correction was expected in January. It is important to note that the level of retail sales remains above its November one. Statistics Canada also reports that retail sales are estimated to have declined 0.4% m-o-m in February based on a preliminary estimate. This would still leave the amount of spending above its pre-tax break level.
Monthly sales were mixed across subsectors. The main decreases were in spending at motor vehicles and parts dealers (-2.6% m-o-m), food and beverages stores (-2.5% m-o-m), and sporting goods, hobby, books and others stores (-2.2% m-o-m), mainly areas that benefited from the initial boost in sales from the GST holiday. These declines were partly offset by increases in spending at gasoline stations (+3.2% m-o-m), furniture, electronics and appliances stores (+3.0% m-o-m), general merchandise retailers (+0.9% m-o-m), and building material and garden centres (+1.6% m-o-m).
Core retail sales, which excludes motor vehicles and parts and gasoline stations, rose 0.4% m-o-m in January (+1.4% y-o-y).
In volume terms (i.e. adjusted for inflation), retail sales dropped 1.1% in January (+2.5% y-o-y). Core retail sales are estimated to have eased 0.3% on the month (+1.1% y-o-y).
At the regional level, headline retail sales rose in most province. The most significant increases were in Newfoundland (+3.5 m-o-m), Saskatchewan (+2.7 m-o-m), Nova Scotia (+2.1% m-o-m) and New Brunswick (+1.8% m-o-m).Retail sales increased the least in Quebec (-2.7% m-o-m), Ontario (-0.9% m-o-m), and Manitoba (-0.4% m-o-m).
Focusing on the y-o-y changes, the value of retail sales increased in all provinces, led by Newfoundland (+10.7% y-o-y), Saskatchewan (+8.8% y-o-y), Alberta (+7.1% y-o-y), and BC (+5.9% y-o-y). They increased the least in PEI (+0.1% y-o-y), Ontario (+2.0% y-o-y), and New Brunswick (+3.5% 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 Saskatchewan (+5.6% y-o-y), Quebec (+5.2% y-o-y), Newfoundland (+3.69% y-o-y), and Alberta (+3.3% y-o-y). They were flat in Ontario (+0.0% y-o-y) and little changed in New Brunswick (+0.2% y-o-y) and PEI (+0.4% m-o-m).
In volume terms, we estimate retail sales increased in almost all provinces, led by Newfoundland (+8.8% y-o-y), Saskatchewan (+6.9% y-o-y), Alberta (+5.2% y-o-y), and BC (+4.1% y-o-y). They rose the least in PEI (-1.6% y-o-y), and Ontario (+0.3% y-o-y).
In Alberta, retail sales rose 0.6% m-o-m in January (+7.1% y-o-y). A rise in clothing and footwear stores, sales at motor vehicles and parts dealers, furniture, electronics and appliances, clothing and footwear stores, and gasoline stations are the main sources of strength. These were partly offset by lower sales at building material and garden centers, sporting goods, hobby, books and others.
As a result, we estimate that core retail sales rose by 0.1% m-o-m (+5.5% y-o-y) in January. Although there are no official volume details at the provincial level, we estimate retail sales volumes in the province rose by 5.3% y-o-y in December.
Statistics Canada also releases retail sales numbers for Calgary and Edmonton. The data shows some divergence between regions. As such, retail sales grew in all three regions with Calgary (+6.3% y-o-y), in Edmonton (+9.0% y-o-y) and the rest of the province (+10.9% y-o-y).
The core measure shows a similar regional disparity, with sales increasing by 5.9% y-o-y in Calgary and 7.8% y-o-y in the rest of the province, while it rose a slightly subdued 3.7% y-o-y in Edmonton.
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Independent Opinion
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