Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud
Bottom line
Retail sales declined in September. While the decline was relatively broad-based across sectors, motor vehicles and parts dealers were the main drag. This decline was mainly the result of dealers struggling with inventories of new cars available to sell due to continued supply chain woes. This is a great example of how the supply chain issues and other supply shocks are holding back the recovery.
In addition to supply chain issues, a return to more normal spending behaviour could also lead to an under performance in retail sales, as spending shifts from goods to services (restaurants, bars, personal care, etc).
In Alberta, the performance of retail sales remains in line with the rest of the country. However, we note an out-performance of retail sales outside the main metropolitan area that could result from the more acute fourth wave of COVID-19 infections in the rest of the province. Moreover, the recent employment reports also suggest that the recovery in the labour market has been stronger in Calgary and Edmonton than in the rest of the country.
The question for the retail sales’ outlook remains whether households will spend the savings accumulated during the pandemic later in 2021 and 2022 or whether households will show some restraint and increase precautionary saving and repay debt. Moreover, continued supply chain woes, including the aftermath of the devastating floods in BC, could hold back sales in the coming months.
Retail sales declined by 0.6% month-over-month in September. Compared to the same month last year, retail sales rose +4.8% year-over-year. The level of retail sales is 9.0% above its pre-pandemic level. Statistics Canada also reports that retail sales rebounded by 1.0% in October based on a preliminary estimate.
Monthly sales decreased in 7 out of 11 sub sectors. On the month, the drop in retail sales resulted mainly from a decline in sales at motor vehicle dealers and part (-1.6% month-over-month), clothing and footwear stores (-5.9% month-over-month). These declines were partly offset by gains at food store (+1.3% month-over-month). Core retail sales, which exclude motor vehicles and parts and gasoline stations, decreased by 0.3% m-o-m (+3.4% year-over-year).
In volume terms, retail sales eased by 1.1% on the month (+1.0% year-over-year) and core retail sales by 0.8% on the month (+0.8% year-over-year).
In Alberta, retail sales increased by 1.7% m-o-m in September (+3.9% year-over-year). The level of sales in the province was 9.8% higher than before the pandemic. Retail sales rose in most sectors led by motor vehicle and parts dealers (+4.7% month-over-month), food stores (+3.5% month-over-month), and building material an garden centres (+3.4% month-over-month). A decrease at clothing and footwear stores (-7.8% month-over-month) offsets part of the decline.
Core retail sales increase by 0.7% month-over-month (+5.7% year-over-year) since most of the rise in headline retail sales is due to the motor vehicle and parts sector. Although there are no official volume details at the provincial level, we estimate that retail sales volumes in the province increased by 1.1% month-over-month (+0.2% year-over-year).
Statistics Canada has recently started to release retail sales numbers for Calgary and Edmonton. The data shows divergence between regions. As such, retail sales in Calgary increased by 8.0% year-over-year, while sales in Edmonton rose a meagre 1.5% year-over-year and edged lower by 0.4% year-over-year in the rest of the province. After a period of under performance, it seems Calgary may be catching up to Edmonton, while the rest of the province continues to under perform both metropolitan areas. The lack of details makes it hard to determine the exact cause of divergences in retail sales between regions. However, a more acute fourth wave of COVID infections outside of the main metropolitan areas could explain the weakness. Moreover, the recent employment reports also suggest that the recovery in the labour market has been stronger in Calgary and Edmonton than in the rest of the country.
Independent Opinion
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