In this week’s ATB Economics Weekly Wrap…

• More people, more spending
• Vehicle sales rev into high(er) gear
• Venture capital investment in Alberta
• Dining out in June
• Chart of the week: Interest-sensitive retail spending 

Our last Wrap of the summer! This week is all about the consumer based on fresh data that came out this week.

The tills keep ringing, but the pace is slowing

Retail sales in Alberta have outperformed this year, even as interest rates have soared. But the pace is cooling, a trend we expect to continue into next year.

Last spring, we thought that Alberta consumers, by now, would have reined in their purchases.  That has happened to some extent, but we’ve been surprised by their resiliency. Retail spending* was up 5% from a year ago in June - the highest increase of all provinces and bucking the 0.6% decline nationally.

But the trend line is flattening. Second quarter sales rose over the previous quarter, but only slightly (+0.2%) and well below the quarterly pace of over 2% in the previous four quarters. Adjusting for population growth, per capita sales edged lower last quarter (see chart).

Looking ahead, an expanding population and a still-healthy labour market will help prop up spending. There is still more room for vehicle sales based on pent-up demand, while the value of food purchases should keep rising (though Canadians have scaled back on the volume of food purchased in response to higher prices). On the other hand, higher interest rates will weigh on items that are more rate sensitive or discretionary (for example, shoes, jewelry/luggage, and sports/hobby retailers have posted some of the strongest gains this year). 

All told, we now expect Alberta retail sales to rise 4.6% on average in 2023, down from their current year-to-date pace of 6.8%. But it’s an upgrade from our June forecast of 3.7%.

Vehicle sales shift from a low to high(er) gear

New vehicle sales have shown renewed signs of life, driven by ‘pent up’ demand and improving supply chains.

Albertans have returned to the auto dealership, and have now found some vehicles to purchase. New auto sales* have rallied this year, rising 9.4% during the first half. Even with the improvement, unit sales are still below pre-COVID levels and far below previous records (the highest quarter was in 2014Q3).

Vehicles continue to get more expensive, but the rate of inflation is finally cooling. The consumer price index for new passenger vehicles rose 3.8% y/y in the second quarter, the lowest reading since early 2021.

The pattern of buying trucks over cars continues. Passenger vehicles have been in long-term decline since 2014, and this year is no different. All of the growth this year has been in truck sales (includes minivans and SUVs). 

Dining out in June

Spending at Alberta restaurants and bars* finished the second quarter on an upbeat note, rising 1.3% in June from May - more than double the national increase (0.5%).

The industry was walloped by the pandemic, with sales collapsing at one point by 57% from peak levels. Restaurant and bar sales have recovered briskly, recording double digit year-over-year increases in each month of 2023.

June sales were 18% above pre-COVID (February 2020) levels. But accounting for higher menu prices, the estimated volume of sales were up a much more modest 3%.**

This report only captures the revenue side of the ledger. The industry has faced increased input costs. It also has encountered labour challenges with the highest job vacancy rate of all industries at 9.7% (Q1 2023).

VC investment on pace for another annual gain 

The Canadian Venture Capital Association reports $406 million in new venture capital (VC) investment raised in Alberta during the first half of 2023. This is down from the same time last year, though the Association notes that Alberta is still on pace to ‘outperform’ its 2022 record of $782 million. The largest disclosed deal was Edmonton-based Jobber at $134 million. Across Canada, $4 billion was raised in the first half. Venture capital investment has risen for five straight years in Alberta. 

Interesting fact…Working from Home

According to new data from Statistics Canada, the share of workers usually working from home in Canada was 1 in 5 (20.1%) as of May 2023. That’s down from about one-quarter (24.3%) two years prior in May 2021, but still well above 2016 levels (7.1%) prior to the pandemic. In Alberta, 88.6% of commuters to work traveled by vehicle while 6.4% took public transit. The remainder used ‘active’ transportation, such as walking or cycling. 

Chart of the Week: Consumer interest in the interest-sensitive

The housing sector was the first casualty of higher interest rates, with starts and residential investment falling in Canada. Consumer spending has been more resilient. In fact, the Bank of Canada upgraded its July forecast for 2023 GDP growth mainly on account of the consumer. But spending is now showing signs of cooling across Canada.  

In the Chart of the Week, we look at how different types of retail sales have performed under higher interest rates so far this year. For context, the Bank of Canada policy rate averaged 4.5% in the first half of 2023 vs. only 0.7% during the same time period last year. Our ‘interest sensitive’ classifications are motivated by the Bank of Canada’s groupings from its October 2022 Monetary Policy report.

The results paint a mixed picture. Bigger ticket and more interest sensitive items like furniture, appliances and electronics declined in the first half (-2.1%) in Alberta, while building materials posted below-average gains (+3.2%). However, auto and part dealer sales were up by 10.3% - a sign of pent up demand, improving supply chains and population growth. Alberta has outperformed the national average across all these major categories this year, which likely reflects a mix of factors - again Alberta’s faster population growth, but also more persistent job gains and the recent uptick in wage growth.

*Adjusted for seasonality (i.e. normal month-to-month changes due to seasonal patterns).

**A ‘real’ number is not reported by Statistics Canada. This estimate is based on deflating restaurant and bar sales by Alberta “Food at restaurant” prices in the Consumer Price Index.

Daily trivia

Answer to the previous trivia question: Won by Lee Petty, the inaugural Daytona 500 took place in 1959.

Today’s trivia question: Pula, which means "rain" or "blessing,” is the name of the currency of what country?