Total retail sales in Canada in April 2008, as reported by Statistics Canada, maintained an appearance of good health. In "actual" current dollars, they were +0.6% month to month and +4.2% year over year. In three-month "smoothed" current dollars, they were -0.1% month to month and +4.7% year over year.

However, the 4.7% gain for smoothed retail sales is only the second time that this figure has dropped below the benchmark 5.0% level since November 2005, two-and-a-half years ago. A 5.0% figure is a good benchmark because, at a target 2% inflation rate, this points to solid 3% real growth on the consumer spending side of the National Accounts.

Concerns Creep In
Concerns about the economy are starting to creep into the retail sales numbers. The high price of gasoline is cutting into the amount of money that consumers have left over to spend on other items. Furthermore, increasing anxiety about the labour market, originating in the manufacturing sector, is also making everyone more conservative when it comes to carrying through on major spending commitments.

Retail Sales Exclusive of Gasoline only +2.7%
Sales by gasoline stations were ahead 15.5% on a year-over-year basis in the latest month. However, this was almost exactly the same as the increase in the price of motor fuel, as recorded in the latest Consumer Price Index (CPI) report. Excluding gasoline, total retail sales were up only 2.7% on a year-over-year basis in April.

Auto sales are being affected by the rise in gasoline prices. While smoothed sales by new and used car dealers were still positive at +2.3% year over year in April, actual sales in the latest month were -0.9% versus a year ago. Gradually, purchasers are opting for smaller, more fuel-efficient cars.

The term "gradually" applies because people don't switch out of their current means of transportation overnight. This is a major "durable" purchase and usually involves some planning and budgeting. However, the upshot of the trend to more compact and medium-sized passenger cars is likely to be a build-up of SUV and truck inventories on used-car lots.

Construction-related Retail and Wholesale Figures Slide
Smoothed sales by the two construction-related retail categories shown in the second graph that accompanies this report − "furniture, home furnishings and electronics" and "home centres and hardware stores" − are still trending down (year over year), although it should be noted that they are also still positive. The latter point is a considerably better state of affairs than is being experienced by their counterparts in the United States.

Nevertheless, the downward trend is another indication of developing weakness in residential markets in Canada. Furthermore, in the latest wholesale trade figures (also for April), the three-month smoothed figure for building materials was -4.9% year over year. This was the third straight month below zero for this measure. If auto sales and housing starts are trending down, then total retail sales may well be in some jeopardy.

Regional Strength in New Areas; Alberta the Weakest
Regionally, retail sales are up the most, on a year-over-year basis, in Saskatchewan (+12.5%), Manitoba (+7.6%) and Newfoundland and Labrador (+6.9%). These are provinces which are finally reaping some of the rewards from the world-wide demand strength for agricultural products, metals and minerals and energy.

The traditional headliner among the provinces, Alberta, now has the lowest rate of increase in total retail sales. This is consistent with some other numbers on Alberta that are not keeping up the pace of prior periods. For example, housing starts in Edmonton and home prices in both Edmonton and Calgary are on the decline.