Recently released figures from Statistics Canada show BC consumers are out spending feverishly, helping fuel the solid pace of economic growth in the province. Retail spending continued to advance at a robust clip in June, pushing the value of sales up more than 12% compared to June 2016. An annual increase of this magnitude hasn’t been seen in BC since 1994. It’s also the strongest gain of any province. Following a large decline in overall retail spending, economic conditions in Alberta have improved recently, setting the stage for a 10.5% y/y gain in retail spending in June – second only to BC among the provinces.
In BC, the jump in retail spending is not just a one-month story. Consumer spending in the province has been unusually buoyant for three years running. The June increase caps off a strong second quarter more generally. As shown in the figure below, following three years in which retail spending grew at an annual pace of around 7%, the second quarter of 2017 saw sales climb by more than 10% y/y.
While the rise in spending is quite broadly-based, spending at automobile dealers, building supply stores and gas stations stand out as factors driving the larger than normal increase in total retail sales. Spending at motor vehicle and parts stores is up by 15% over the past year. Because this segment is so large in the overall retail space (one quarter of all retail sales), autos alone accounted for one-third of the growth in retail sales in BC over the past year. Second quarter sales at stores selling building materials and gardening supplies surged by an eye-popping 30% compared to Q2 last year. This eye-watering increase means that this segment drove nearly one-fifth of the overall increase in retail spending.
Consumer spending has been a key contributor to the healthy pace of economic growth in BC. We expect this trend to continue into 2018. But with more than half of the expansion in retail sales over the past year stemming from just two segments of the retail sector (both of which are sensitive to interest rates), some moderation in the pace of retail sales growth in the latter part of this year and into 2018 seems likely.