Retail sales growth stalls; tourism remains strong

B.C. retail sales were little changed in September, pointing to softness in consumer demand, while wildfires that swept through the B.C. Interior also tempered gains.

Dollar-volume sales were at $7.14 billion (seasonally adjusted); however, year-over-year growth slowed to a disappointing 0.7% from 1.4% in August – a pace well below the rate of inflation. Sales have broadly trended range-bound through 2018 following robust growth of 9% in 2017.

Decelerating year-over-year performance was driven by a slowdown in sales of motor vehicles and parts. Sales of electronics and appliances and of home furniture and furnishings were also drags.

Some of the recent weakness was caused by wildfires. Of a subset of businesses surveyed by Statistics Canada, about 4% noted an impact from July through September, reflecting either direct effects of the fires or less tourism. Affected businesses were concentrated in B.C.

Through the first nine months of 2018, retail sales growth was a modest 3%, slightly less than the national gain of 3.4%. Vehicle sales were the primary drag, with growth of 0.7% that aligns with a drop in the number of new vehicles sold in the province. Less replacement demand and higher interest rates are likely factors. A deterioration in home sales has likely constrained sales at home and furnishings stores, which posted a modest gain of 3.6% year-to-date. 

Tourism remains buoyant, underpinned by a low Canadian dollar and potential aversion to the U.S. political environment. Seasonally adjusted, the number of international tourists entering Canada through B.C. rose 2.3% from August to 503,376 persons in September. Third-quarter inflows rebounded after a second-quarter lull. September’s performance was a modern-era high and marked the second time this year that levels surpassed 500,000 persons. This was exceeded only by visits during Expo 86. That said, the current cycle is less economically significant than that observed during Expo 86, given the size of the economy was less than half today’s levels.

Nevertheless, current numbers are elevated and mark a growth driver for the economy. Year-over-year tourism inflows rose 6.2% in September, with year-to-date levels up 5%. While U.S. visits represent more than 60% of total visitors, growth has been driven by overseas visitors, whose numbers rose 8.3% year-to-date.

Annual tourist visits to B.C. are tracking about 5.9 million persons, marking a 4% annual gain.

Strong tourism has propped up related sectors. According to CBRE, tourism drove hotel occupancy rates in August to a robust pace of nearly 70% (seasonally adjusted).

Bryan Yu is deputy chief economist at Central 1 Credit Union.