Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
Retail sales posted another solid increase in October, after a robust September. Moreover, the details indicate that the strength was more spread across various categories. With this strength, retail sales in the fourth quarter are likely to be robust and provide a boost to consumer spending and GDP, despite the preliminary estimate suggesting little change in retail spending in November.
The recent strength 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 unchanged y-o-y in October, while core retail sales were down (-1.9% y-o-y). Almost all provinces, except Alberta, are estimated to have seen a decline in core spending per capita adjusted for inflation, suggesting that individual households are reducing their spending.
There are some regional divergences. At one end, consumer spending in Atlantic Canada, Quebec and Alberta remains robust, even once adjusted for population growth, while it is weak in Saskatchewan, Ontario, and BC. There is a correlation between the strength in consumer spending and indebtedness, with more robust sales in provinces with lower indebtedness (Atlantic provinces). In contrast, consumer spending underperforms in provinces with higher debt levels (Ontario and BC).
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 resilience in the labour market so far is 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 0.7% m-o-m in October. Compared to the same month last year, retail sales increased 2.2% y-o-y. Statistics Canada also reports that retail sales are estimated to have been unchanged m-o-m in November based on a preliminary estimate.
Monthly sales were higher in only 7 out of 9 subsectors. Spending at motor vehicles and parts dealers (+1.1% m-o-m) was the main source of increase, followed by clothing, footwear and accessories stores (+2.4% m-o-m), general merchandise (+2.0% m-o-m), and health and personal care stores (+1.5% m-o-m). These higher sales were partly offset by lower spending at gasoline stations (-3.1% m-o-m) and building material and garden centers (-0.2% m-o-m).
Core retail sales, which excludes motor vehicles and parts and gasoline stations, rose 1.2% m-o-m (+2.3% 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 1.4% in October (+2.8% y-o-y). Core retail sales are estimated to have increased by 1.7% on the month (+0.8% y-o-y).
All provinces saw higher sales in October, except for Alberta (-0.2% m-o-m). The biggest increases on the month were in Saskatchewan (+1.8% m-o-m), New Brunswick (+1.6% m-o-m), Newfoundland (+1.4$ m-o-m), and Ontario (+1.0% m-o-m).
Focusing on the y-o-y changes, the value of retail sales increased the most in Quebec (+4.1% y-o-y), PEI (+4.0% y-o-y), Alberta (+2.3% m-o-m), and Ontario (+2.1% m-o-m). On the flip side, it was lower in Newfoundland (-1.1% m-o-m) and Nova Scotia (-0.1% m-o-m).
Looking at the value of core retail sales, we estimate they increased the most in New Brunswick (+5.2% y-o-y), Alberta (+4.6% y-o-y), Ontario (+2.4% y-o-y), and Newfoundland (+2.2% y-o-y). Core spending decreased in Saskatchewan (-1.5% y-o-y) and BC (-0.5% y-o-y).
In Alberta, retail sales declined 0.2% m-o-m in October (+2.3% y-o-y). Lower sales at food and beverage retailers was the main drag on the month, while motor vehicles and parts dealers were the main source of increase. As a result, we estimate that core retail sales declined by 1.6% m-o-m (+4.6% y-o-y) in October. Although there are no official volume details at the provincial level, we estimate that retail sales volumes in the province increased by 0.5% m-o-m (+2.9% 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 3.5% y-o-y and by 5.0% y-o-y in the rest of the province in October, while it decreased 0.5% y-o-y in Edmonton. However, the core measure shows that spending increased at a similar pace across the province, with +5.5% y-o-y in Calgary, +4.6% y-o-y for Edmonton and 3.7% y-o-y for the rest of the province.
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Independent Opinion
The views and opinions expressed in this publication are solely and independently those of the author and do not necessarily reflect the views and opinions of any organization or person in any way affiliated with the author including, without limitation, any current or past employers of the author. While reasonable effort was taken to ensure the information and analysis in this publication is accurate, it has been prepared solely for general informational purposes. There are no warranties or representations being provided with respect to the accuracy and completeness of the content in this publication. Nothing in this publication should be construed as providing professional advice on the matters discussed. The author does not assume any liability arising from any form of reliance on this publication.