Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line:
Retail sales posted a solid gain in August, and the preliminary estimate suggests that they increased again in September. The strength in retail sales in Q3 likely grew by 0.8% q-o-q, suggesting a rebound in consumer spending over the period. Nevertheless, despite the increase in overall spending, core retail sales in volume have been mostly unchanged since Spring 2022 (Fig 1).
Retail sales have been driven mainly by population growth in recent years. However, the rise in headline retail sales in recent months points to an increase in spending per person, but not in core retail sales per person. Despite this strength, we estimate that retail sales adjusted for inflation and population growth were lower by 1.7% y-o-y in August, while core retail sales were also down (-4.9% y-o-y).
The strength in retail sales in August was seen in all provinces except BC, Alberta and Saskatchewan, which saw a decline. However, many provinces are estimated to have seen a decline (y-o-y) or little change in spending per capita adjusted for inflation and population, suggesting that individual households’ spending continues to be restrained (see Fig 4). We continue to note 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.
Overall, the report is mixed. While we are seeing some robust headline numbers and a rebound in consumer spending, the details show that core retail sales (ex. autos and gasoline) are only growing modestly. Moreover, once adjusted for population growth, retail sales are increasing more modestly, showing that population growth remains a significant driver of aggregate demand. As we have written in the past, if it were not for population growth, the Canadian economy would have been in a recession because of the decline in spending per person (see It’s a “Me-cession”, not a recession). With this in mind, the lower immigration targets announced by the government bring significant uncertainty to the outlook for consumer spending for the coming years. As a result, we continue to think the BoC should cut its policy rate by 50bp at the December meeting.
Retail sales rose by 0.4% m-o-m in August, marginally lower than expectations. Compared to the same month last year, retail sales rose 1.4% y-o-y. Statistics Canada also reports that retail sales are estimated to have increased 0.4% m-o-m in September based on a preliminary estimate.
Monthly sales were higher in 4 out of 9 subsectors. The main increases were in motor vehicles and parts (+3.5% m-o-m), a second consecutive month of strong growth. There were also solid gains in clothing, footwear and accessories (+0.8% m-o-m) and sporting, hobbies, books and others (+0.9% m-o-m). On the flip side, there were some declines in spending at gasoline stations (-2.7% m-o-m), food and beverage (-1.5% m-o-m), furniture, electronics and appliances (-1.4% m-o-m), and building and gardening centres (-0.5% m-o-m).
Core retail sales, which excludes motor vehicles and parts and gasoline stations, declined 0.4% in August (+0.3% y-o-y).
In volume terms (i.e. adjusted for inflation), retail sales jumped higher by 0.7% in August (+1.5% y-o-y). Core retail sales are estimated to have decreased 0.3% on the month (-1.6% y-o-y).
At the regional level, most provinces saw higher retail sales in August, except for Alberta (-1.1% m-o-m), BC (-1.0% m-o-m) and Saskatchewan (-0.8% m-o-m). Sales increased the most in PEI (+2.5% m-o-m), New Brunswick (+2.5% m-o-m), Newfoundland (+1.3% m-o-m) and Manitoba (+1.1% m-o-m).
Focusing on the y-o-y changes, the value of retail sales increased in most provinces, except in BC (-0.6% y-o-y). Retail sales rose the most in Newfoundland (+9.7% y-o-y), New Brunswick (+5.0% y-o-y), Saskatchewan (+4.9% y-o-y), and Nova Scotia (+2.5% y-o-y)
Looking at the value of core retail sales, we estimate they rose the most in Saskatchewan (+4.0% y-o-y), Alberta (+2.4% y-o-y), Quebec (+2.0% y-o-y), and New Brunswick (+1.7% y-o-y). However, they declined in PEI (-3.7% y-o-y) and Nova Scotia (-1.4% y-o-y).
In volume terms, we estimate retail sales increased in all provinces, except in BC (-0.5% y-o-y), led by Newfoundland (+9.9% y-o-y), New Brunswick (+5.2% y-o-y), Saskatchewan (+5.1% y-o-y), and Nova Scotia (+2.7% y-o-y).
In Alberta, retail sales declined by 1.1% m-o-m in August (+2.2% y-o-y). A decline in sales at motor vehicles and parts dealers and at food and beverage stores was the main source of the decrease in retail sales. However, we estimate that core retail sales rose by 1.4% m-o-m (+2.4% y-o-y) in August. Although there are no official volume details at the provincial level, we estimate retail sales volumes in the province declined by 0.8% y-o-y in August.
Statistics Canada also releases retail sales numbers for Calgary and Edmonton. The data shows some convergence between regions. As such, retail sales in Calgary and Edmonton increased by 1.6% y-o-y and 1.8% y-o-y, respectively, while they declined by 1.3% y-o-y in the rest of the province.
The core measure continues to show a different regional disparity, with sales increasing by a modest 0.2% y-o-y in Calgary, while they rose by 3.9% y-o-y in Edmonton and 3.1% y-o-y in the rest of the province.
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Independent Opinion
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