As reported earlier this week, inflation is now comfortably sitting near the 2% target and the Bank of Canada has cut interest rates five times since last summer. Are consumers celebrating by ramping up spending? Not yet, but there are some signs of improvement.

Data* released today shows that retail sales in Alberta are now trending higher, rising on a year-over-year basis for the sixth straight month in November. However, due to a sluggish first half, year-to-date (YTD) revenues rose only 1.2% relative to the first eleven months of 2023.

Spending on bigger-ticket items like furniture and building materials that are typically more sensitive to borrowing costs pulled back, while non-durable (such as health & personal care, general merchandise and groceries) purchases continued to rise. 

Albertans have also scaled back on dining out. Receipts of food services and drinking places grew a modest 3.7% YTD through November, a moderation from the 12.1% pace set in 2023.  

An area with a more encouraging consumer story has been new car sales. New motor vehicle sales in Alberta have risen by 8.2% in value compared to the first eleven months of 2023. While this is a sharp increase, remember that the auto sector suffered significant supply-chain shortages which pushed the number of new cars sold down by 6.5% in 2022. 

Stripping out inflation, we find more clear evidence of consumers dialing back on purchases last year across retail stores, restaurants & bars and new motor vehicles. Estimated volume of purchases slowed significantly last year (see chart). Further, when accounting for ongoing population gains (fastest in the country), sales volumes have fallen on a per capita basis.  

In our base case forecast (which doesn’t include a full trade war), we expect consumer spending to slowly improve over the course of 2025 as the Bank of Canada continues to cut its policy rate, with a material pick up in the second half.

*All data in this report have been adjusted for seasonal variations

Answer to the previous trivia question: It was in 1952 that Christopher Strachey’s checkers program was able to play a complete game of checkers at a reasonable speed.

Today’s trivia question: In what year did Belmont Farley and Wesley Clark of MIT succeed in running the first artificial neural network?