economy
AN EXPANDING MARKET FOR RETAILERS Retail spending continued to grow last year—albeit by a declining margin—however the increase was driven by record-setting population growth.
Retail sales are a useful metric in evaluating how households are faring, on average, at a given time. During good economic times, households are likely to spend more as they potentially have more disposable income and more confidence in their incomes going forward. Conversely, they are likely to spend less during difficult times due to job loss, concerns about future job security, or, as is the case for many Canadians, allocating more of their incomes to servicing debt (which we’ll explore in greater detail later on). And when consumers spend more of their incomes on debt payments, they naturally have less to spend elsewhere, which is one of the aims of the Bank of Canada’s restrictive monetary policy in order to reduce inflation. So given the backdrop of today’s high interest rate environment, which has affected variable-rate debt holders (both mortgage and
non-mortgage debt), as well as about a third of fixed-rate mortgage holders, it stands to reason that retail sales should be declining as Canadians adjust their household budgets. But on the whole, that hasn’t happened yet as retail sales in Canada grew in 2023 by 0.4% and in BC by 0.3%. A small increase to be sure, but an increase nonetheless. The primary driver of that growth, however, isn’t individual households spending more, it’s once again Canada’s record population growth. When we adjust for population change, per-capita retail sales declined in 2023 in both Canada and BC, by -0.1% and -1.0% respectively. This is one of many indicators that show a growing economy, at least at first glance, but when adjusted for population tell a tale of an economy that has been responding to a restrictive monetary policy.
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