Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
Retail sales declined more than expected in May and the preliminary estimate suggests that it decreased again in June. As such, it is interesting to note that the level of core retail sales in volume has been mostly unchanged since Spring 2022 (Fig 1).
Retail sales remain driven by population growth, and consumers remain cautious with their spending. As such, we estimate that retail sales adjusted for inflation and population growth were lower by 2.3% y-o-y in April, while core retail sales were also down (-4.6% y-o-y). Most provinces are estimated to have seen a decline in core spending per capita adjusted for inflation, suggesting that individual households continue reducing their spending (see Fig 4).
The weakness in retail sales was broad-based regionally, with lower sales in 9 out of 10 provinces. Similarly, retail sales volume per capita declined compared to the same month last year in 7 out of 10 provinces, led by Alberta and BC. 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).
The outlook for retail sales and consumer spending more broadly remains subdued 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, we believe consumer spending will remain subdued. The strong population growth and the resilience in the labour market so far are the main sources of support for 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 dropped by 0.8% m-o-m in May, weaker than expectations. Compared to the same month last year, retail sales rose 1.0% y-o-y. Statistics Canada also reports that retail sales are estimated to have declined 0.3% m-o-m in June based on a preliminary estimate.
Monthly sales were lower in 8 out of 9 subsectors. The only increase was in motor vehicles and parts (+0.8% m-o-m). Most of the decrease was at food and beverage retailers (-1.9% m-o-m), building material and garden centers (-2.7% m-o-m), general merchandise stores (-1.0% m-o-m), and clothing and footwear stores (-1.5% m-o-m).
Core retail sales, which excludes motor vehicles and parts and gasoline stations, fell 1.4% in May (-0.4% y-o-y).
In volume terms (i.e. adjusted for inflation), retail sales declined 0.7% in May (+0.7% y-o-y). Core retail sales are estimated to have dropped 1.5% on the month (-1.4% y-o-y).
At the regional level, all provinces saw lower retail sales in May, except for Nova Scotia (+0.6% m-o-m). Sales decreased the most in Alberta (-2.5% m-o-m), PEI (-2.4% m-o-m), New Brunswick (-2.2%), and BC (-1.3% m-o-m). They declined the least in Newfoundland (-0.1% m-o-m), Quebec (-0.2% m-o-m), and Ontario (-0.3% m-o-m).
Focusing on the y-o-y changes, the value of retail sales increased in most provinces, except in Alberta (-1.8% y-o-y) and BC (-1.6% y-o-y). Retail sales rose the most in Saskatchewan (+6.1% y-o-y), New Brunswick (+5.0% y-o-y), Quebec (3.1% y-o-y), and PEI (+2.8% y-o-y).
Looking at the value of core retail sales, we estimate they rose the most in New Brunswick (+3.8% y-o-y), Saskatchewan (+2.3% y-o-y), Quebec (+1.4% y-o-y), and Ontario (+0.5% y-o-y). However, they declined in Nova Scotia (-2.6% y-o-y), Newfoundland (-2.4% y-o-y) and BC (-1.0% y-o-y).
In volume terms, we estimate retail sales increased the most in Saskatchewan (+5.7% y-o-y), New Brunswick (+4.6% y-o-y), Quebec (+2.7% y-o-y), and PEI (+2.5% y-o-y). However, they declined in Alberta (-2.1% y-o-y) and BC (-1.9% y-o-y).
In Alberta, retail sales fell by 2.5% m-o-m in May (-1.8% y-o-y). A drop in sales at motor vehicles and parts dealers and in building material and gardening centers were the main source of decline. This weakness was partly offset by gains in spending at food and beverage retailers, sporting, hobby, and bookstores, and at clothing and footwear stores. We estimate that core retail sales decreased by 0.8% m-o-m (+0.4% y-o-y) in May. Although there are no official volume details at the provincial level, we estimate that retail sales volumes in the province declined 0.7% y-o-y in May.
Statistics Canada also releases retail sales numbers for Calgary and Edmonton. The data shows some divergence between regions. As such, retail sales in Calgary decreased by 6.7% y-o-y while they rose by 0.3% y-o-y in Edmonton and 0.8% y-o-y in the rest of the province.
The core measure also shows regional disparities, with sales declining by 2.5% y-o-y in Calgary, while they rose by 3.4% in Edmonton and 0.5% in the rest of the province.
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Independent Opinion
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