Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
Retail sales declined in line with expectations in February. The decline is mainly the result of a drop in motor vehicles sales, and, despite the correction, the level of sales volume remained above its November level, showing that the GST holiday continued to boost sales.
The preliminary estimate suggests a strong rebound in March. This may seem counterintuitive considering the extreme level of uncertainty. However, it is likely a sign that consumers are purchasing goods in anticipation that prices will increase later due to the US tariffs. Hence, this strength is only some spending being brought forward will prove temporary. Nevertheless, it provides a stronger handover to consumer spending in Q2.
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, with the declines since the beginning of the year, spending volume per capita is only marginally higher than the lows seen in June 2024 (Fig. 2). We estimate that retail sales adjusted for inflation and population growth were lower by 1.0% y-o-y in February and core retail sales were down by 1.1% y-o-y. Both measures are only marginally 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 and BC. We also note some weakness in Quebec, which could suggest that trade war uncertainty is also likely holding back spending per capita.
The preliminary estimate for March suggests that consumer spending is likely to experience a temporary period of strength, as consumers make purchases now in anticipation of the inflationary impact of the US tariffs. This is likely to lead to strong, albeit temporary, consumer spending in Q2. Nevertheless, growth in Canada is still expected to slow due to the extreme uncertainty created by the US tariff threats.
Today’s report is unlikely to change the Bank of Canada’s view of the economy because the strength in consumer spending will be seen as temporary. Moreover, the central bank remains more concerned by the inflationary impact of US tariffs than their negative impact on growth, especially considering broadening inflationary pressures. 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 0.4% m-o-m in February, weaker than expected, following a strong increase in December. Compared to the same month last year, retail sales rose 4.7% y-o-y. Since the end of the GSR holiday, retail sales is expected to correct itself. 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 increase 0.7% m-o-m in March based on a preliminary estimate. This is a big step up from the past two months.
Monthly sales were mixed across subsectors. The main decreases were in spending at furniture, electronics and appliances stores (-2.9% m-o-m), building material and garden centers (-2.8% m-o-m), clothing, footwear and accessories (-2.7% m-o-m), and motor vehicles and parts (-2.6% m-o-m). These declines were partly offset by increases in spending at food and beverage retailers (+2.8% m-o-m), general merchandise retailers (+1.2% m-o-m), and sporting goods, hobby, books and others (+1.0% m-o-m).
Core retail sales, which exclude motor vehicles and parts and gasoline stations, rose 0.5% m-o-m in February (+4.9% y-o-y).
In volume terms (i.e. adjusted for inflation), retail sales dropped 0.4% in February (+2.2% y-o-y). Core retail sales are estimated to have been flat on the month (+2.0% y-o-y).
At the regional level, headline retail sales decreased in most provinces. The most significant decreases were in Nova Scotia (2.6% m-o-m), Quebec (-0.9% m-o-m), BC (-0.6% m-o-m), and Alberta (-0.5% m-o-m). Retail sales increased the most in Manitoba (+1.8% m-o-m). Newfoundland (+1.1% m-o-m).
Focusing on the y-o-y changes, the value of retail sales increased in all provinces, led by Newfoundland (+10.2% y-o-y), Manitoba (+9.0% y-o-y), Alberta (+7.1% y-o-y), and Saskatchewan (+5.9% y-o-y). They increased the least in Nova Scotia (+1.2% y-o-y), PEI (+2.7% y-o-y), and Quebec (+3.2% 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 (+2.9% y-o-y), Ontario (+2.1% y-o-y), Alberta (+2.0% y-o-y), and Nova Scotia (+1.7% y-o-y). They were flat in BC (+0.0% y-o-y) and little changed in New Brunswick (+0.8% y-o-y) and Quebec (+0.8% m-o-m).
In volume terms, we estimate retail sales increased in almost all provinces, led by Newfoundland (+7.6% y-o-y), Manitoba (+6.4% y-o-y), Alberta (+4.6% y-o-y), and Saskatchewan (+3.4% y-o-y). They rose the least in Nova Scotia (-1.2% y-o-y), PEI (+0.2% y-o-y), and Quebec (+0.8% y-o-y).
In Alberta, retail sales declined 0.4% m-o-m in February (+4.7% y-o-y). A decline in sales at motor vehicles and parts dealers, furniture, electronics and appliances, and clothing and footwear stores, are the main sources of weakness. These were partly offset by higher sales at building material and garden centers, general merchandise retailers, and sporting goods, hobby, books and others.
As a result, we estimate that core retail sales rose by 1.2% m-o-m (+2.0% y-o-y) in February. Although there are no official volume details at the provincial level, we estimate retail sales volumes in the province rose by 4.5% y-o-y in February.
Statistics Canada also releases retail sales numbers for Calgary and Edmonton. The data shows some divergence between regions. As such, retail sales grew in Edmonton (+3.7% y-o-y) and the rest of the province (+7.5% y-o-y), while it declined in Calgary (-1.4% y-o-y).
The core measure also shows some regional disparity, with sales being weak in Calgary (+1.2% y-o-y) and Edmonton (+0.1% y-o-y) but rose strongly in the rest of the province (+15.3% y-o-y).
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Independent Opinion
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