Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
Retail sales rose slightly in April, but slightly less than expected. The increase is mainly the result of a surge in motor vehicle sales, while there was a strong decline in sales at gasoline stations, likely resulting from the removal of the carbon tax. Retail sales have been temporarily supported by purchases being brought forward ahead of potentially higher prices due to the trade tension.
The preliminary estimate suggests that retail sales will drop by 1.1% m-o-m in May. This suggests that the sharp fall in consumer sentiment in recent months, due to the elevated uncertainty, is finally impacting consumer spending. It also suggests that consumer spending is likely to be weak in Q2, holding back growth.
Retail sales per person, adjusted for inflation, improved in April, but are still below the level reached in December, boosted by the GST holiday. Nevertheless, they are on an improving trend, after bottoming 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 0.5% y-o-y in April. However, most of the improvement comes from higher motor vehicle sales, as core retail sales adjusted for population and inflation are lower by 1.5% y-o-y. Alberta continues to show some significant weakness in spending per capita (-2.0% y-o-y). Continued underperformance in purchasing power, with real wages still below their 2019 level, is the likely culprit.
The robust consumer spending in March and April, and he sharp drop in May, suggest that consumer spending is likely to be weak but positive in Q2. However, the dynamic means that some of the weakness could carry over into Q3. Recent indicators are suggesting some improvement in consumer sentiment. While it does not signal a strong rebound in activity, it suggests that further deterioration in consumer spending is less likely. Similarly, while the labour market is weak, we haven’t seen significant job losses so far.
Today’s report suggests that consumer spending are finally being affected by the trade uncertainty. However, it is unlikely to change the Bank of Canada’s view of the economy ahead of the July meeting. The BoC remains more focused on current inflation than the amount of slack in the economy, with its measures of core inflation above 3%. This makes next week’s CPI release the most important indicator going into the July meeting.
Retail sales grew 0.3% m-o-m in April, following a strong increase in March. Compared to the same month last year, retail sales rose 5.0% y-o-y. Statistics Canada also reports that retail sales are estimated to have decreased 1.1% m-o-m in May, based on a preliminary estimate.
Monthly sales were mixed across subsectors. The main increases were in spending on motor vehicles and parts (+1.9% m-o-m), sporting goods, hobby, books and others (+1.0% m-o-m), furniture, electronics and appliances (+0.8% m-o-m), and food and beverage retailers (+0.2% m-o-m). These increases were partly offset by declines in spending at gasoline stations (-2.7% m-o-m), likely the result of the removal of the carbon tax, clothing, footwear and accessories (-2.2% m-o-m), and building material and garden centers (-0.4% m-o-m).
Core retail sales, which exclude motor vehicles and parts and gasoline stations, rose 0.1% m-o-m in April (+3.7% y-o-y).
In volume terms (i.e. adjusted for inflation), retail sales rose 0.5% in April (+3.3% y-o-y). Core retail sales are estimated to have decreased 0.2% m-o-m (+1.2% y-o-y).
At the regional level, headline retail sales decreased in most provinces. The most significant decreases were in New Brunswick (-3.1% m-o-m), PEI (-2.4% m-o-m), Nova Scotia (-2.0% m-o-m), and Newfoundland (-0.5% m-o-m). Retail sales increased the most in Saskatchewan (+2.0% m-o-m) and BC (+1.7% m-o-m).
Focusing on the y-o-y changes, the value of retail sales increased in most provinces, led by Newfoundland (+8.1% y-o-y), BC (+6.1% y-o-y), Ontario (+6.1% y-o-y), and Manitoba (+5.3% y-o-y). They increased the least in PEI (-1.5% y-o-y), New Brunswick (+2.3% y-o-y), and Nova Scotia (+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 Newfoundland (+6.7% y-o-y), BC (+6.3% y-o-y), Saskatchewan (+5.8% y-o-y), Ontario (+4.9% y-o-y), and Quebec (+4.9% y-o-y). They decreased in PEI (-0.4% y-o-y).
In volume terms, we estimate retail sales increased in most provinces, led by Newfoundland (+6.4% y-o-y), Ontario (+4.4% y-o-y), BC (+4.4% y-o-y), Manitoba (+3.6% y-o-y), and Saskatchewan (+3.3% y-o-y). They decreased in PEI (-3.1% y-o-y).
In Alberta, retail sales eased 0.1% m-o-m in April (+3.7% y-o-y). Increases in sales at motor vehicles and parts dealers (+1.9% m-o-m), building material and garden centers (+4.0% m-o-m) were offset by declines in sales at furniture, electronics and appliances stores (-1.4% m-o-m), gasoline stations (-0.5% m-o-m), clothing and footwear stores (-0.4% m-o-m), and sporting goods, hobby, and book stores (-2.1% m-o-m).
As a result, we estimate that core retail sales decreased by 1.0% m-o-m (+4.0% y-o-y) in April. Although there are no official volume details at the provincial level, we estimate retail sales volumes in the province rose by 1.0% y-o-y in April.
Statistics Canada also releases retail sales numbers for Calgary and Edmonton. The data shows weaker growth in the metropolitan areas compared to the rest of the regions. As such, retail sales grew in Calgary (+1.9% y-o-y), Edmonton (+3.8% y-o-y), and the rest of the province (+6.2% y-o-y).
The core measure also shows some regional disparity, with sales being weaker in Calgary (+2.5% y-o-y) and Edmonton (+2.0% y-o-y) but rose strongly in the rest of the province (+15.2% y-o-y).
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Independent Opinion
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