Higher interest rates bite with a lag, and we’ve seen that on full display with the consumer this year.

After a strong start to the year, retail sales have leveled off in Alberta despite continued population gains (see chart). That trend continued in October. Alberta registered a small decline in retail sales of 0.2%, which partly offset September’s 0.8% gain. In comparison, national sales rose 0.7% in October. 

Looking at a longer time frame, year-over-year (y/y) gains have moderated in the second half of the year. October retail sales were up 2.3% compared to the same time last year.

It’s helpful to look at core sales, which exclude more volatile vehicle and gasoline sales. Core retail sales were up a more sturdy 4.6% y/y in October, compared to 1.8% nationally.*

All things considered, retail spending has been more resilient in Alberta this year. Alberta has led all provinces, except PEI, in year-to-date (ytd) retail sales growth of 4.9% (vs. 2.2% nationally). Core sales are up 7.9% ytd (2.6% nationally).

Where have Albertans been spending their money this year? Larger ytd sales gains include auto and parts dealers (+8%), food and beverages stores (+9%), clothing (+11%), and shoe retailers (+24%). On the softer side, bigger ticket and more interest-sensitive purchases have eased, including electronics and appliances (-2%), building materials (+1%) and furniture (+2%). But the largest drop is gasoline stations (-13%) reflecting lower gasoline prices. 

2023 ends in 10 days, but we still have two months to go with the retail sales numbers. Fortunately, the ATB consumer index gives us a more timely read. Representing the value of ATB consumer mastercard transactions, the index was largely unchanged in November (on a 3-month moving average basis) and shows a similar trend as the retail data (see pg. 10 of our outlook). 

Heading into the holidays, we have shown that there is a seasonal spike in certain sales categories - clothing, liquor, jewelry and electronics - and a slowdown in others (e.g. vehicles and gasoline). Surveys point to more bargain hunting than normal amid inflation and interest rate pressures. 

Bottom Line: The latest readings on retail are consistent with our latest outlook, released last week. We forecast that retail spending would slow in late 2023 and into next year. Alberta’s fast growing population remains a tailwind, and the Bank of Canada is expected to cut rates around mid next year. However, debt servicing costs will continue to rise as households renew mortgages and other loans at higher rates, weighing on consumer spending. Overall we forecast real consumer spending to rise a modest 1.2% next year, below the expected rate of population growth. 

*For core and sales by component, year-over-year and year-to-date changes are based on non-seasonally adjusted data. All other comparisons are seasonally adjusted. 

Answer to the previous trivia question: There are two solstices per year—one in June on either the 20th or 21st and one in December on either the 21st or 22nd.

Today’s trivia question: In the movie "Miracle on 34th Street," what does Susan Walker ask Kris Kringle to give her for Christmas?