In this week’s ATB Economics Weekly Wrap…

• Inflation - a little less sticky 
• Retail sales - holding ground 
• Household debt ratios - age matters
• Tourism - taking flight
• Chart of the Week: Black Friday special - Holiday spending in November

It’s all about the consumer this week. Inflation is the big news, with the annual rate easing last month and even more so in Alberta. Consumers are still spending, but showing some signs of restraint heading into the holidays. Today is Black Friday, so we naturally ask: what do Albertans buy more of in the lead up to the holidays?

Encouraging inflation report ahead of December rate decision

It’s way too early to declare victory, but inflation headed in the right direction for the second straight month in October.

High and sticky inflation has been an irritant for the Bank of Canada on its journey back to its 2% target. The economy has stopped growing and the labour market has softened. The Bank admits that the economic slowdown is easing price pressures, but noted last month (at the October 25 rate decision) that progress has been slow and that “measures of core inflation show little downward momentum.”

With that in mind, there is much to like about October’s inflation report—the last one before the December 6 rate decision. First, annual inflation fell to 3.1%, the lowest since June, nudging in just below expectations. Second, food inflation is trending in the right direction (though still very high). Third, year-over-year core inflation measures, while still elevated, eased again. The bad news? High inflation lingers in the shelter category. In addition to rising mortgage interest costs, rental costs continue to accelerate and have replaced food as the latest inflation driver.

Wrap it all up, and this is an encouraging report. We see the Bank on hold next month and into next year with rate cuts starting mid-2024. Expect the hawkish, inflation-fighting talk to continue next month, but for the language to soften with time if the disinflationary trend holds. That already appears to be happening. In a speech this week, Governor Tiff Macklem signaled that the policy rates may be at its peak: "This tightening of monetary policy is working, and interest rates may now be restrictive enough to get us back to price stability.”

Here in Alberta, there was even more to like. Annual inflation slipped well below the national rate last month, clocking in at 2.1%. There’s only been one month this year where Alberta’s inflation rate has been higher than Canada’s. Gasoline prices fell more here, and the fuel tax pause factors in again (the tax was partially in place in October through December 2022 at 4.5 cents/litre). Electricity prices are still high, but rose at a slower rate year-over-year, thanks to a pullback during the month. Beyond that, the improvement was fairly broad-based across categories, with inflation excluding energy and food remaining well below the national rate.

Inflation numbers can be hard to relate to (how many households look at their ‘core’ inflation rate?). Maybe this chart will help. It shows more detailed components that you see every day and how much prices have risen (or fallen) over the last year.

Household debt ratios - then and now

Alberta households will continue to face higher debt servicing costs next year as loans are renewed at higher rates. Fortunately, debt ratios have declined from where they were in the mid-to-late 2010s.

Alberta’s household debt to disposable income ratio (‘debt ratio’) was 178% in the second quarter, according to the latest data on household balance sheets. This is below the national average (188%), and third among provinces after Ontario (207%) and B.C. (218%).

The debt ratio has declined in Alberta since 2016, compared to an upward trend nationally (see chart). A key reason is Alberta’s relatively flat housing market (at least until recently), resulting in Albertans, on average, taking on less mortgage debt compared to other provinces.

Age structure matters when comparing debt ratios. Younger families naturally carry more debt: the Canadian average debt ratio is 72% for 65+ year olds compared to 258% for 35-44 year olds as of Q2. Alberta’s young working age population and a lower share of aged 65+ (roughly 15% vs. 19% nationally) puts upward pressure on its average debt ratio.

Factoring in the other side of the balance sheet, Alberta continues to report higher net worth per household than the national average as of the second quarter ($1.04 million per household on average vs. $970,000 nationally).

Tourism sector takes flight

Alberta’s tourism industry is still finding its footing after COVID, but it’s encouraging to see visitor spending bounce back briskly. Last year it surpassed 2019 spending levels, and more timely data show international airport travel is largely holding above pre-COVID levels this year.

It’s been a long road, but tourism spending has clawed its way back following COVID disruptions. Travel Alberta reports that Tourism spending in the province hit $10.7 billion last year, up from only $6.3 billion in 2021 and surpassing the pre-COVID level.

Digging deeper, it was in-province and rest of Canada travel spending that pushed Alberta above 2019 levels last year. Overseas and U.S. spending continued to lag. However, higher frequency daily data on airport visits suggests that international travel has staged an impressive comeback in 2023. It’s been holding above 2019 levels for most of this year.

While demand has bounced back, the industry faces labour challenges. Food and accommodation has the highest job vacancy rate of all major sectors at 9.2% as of the second quarter, more than double the provincial average of 4.5%.

Interesting Fact: In 2015, Amazon was the first company to offer "Black Friday in July" deals in what they coined "Prime Day." Other companies have followed suit with similar summer deals.

Chart of the Week: Holiday shopping in November

Move over last-minute holiday shoppers (myself included). It seems that more people are electing to buy their gifts earlier, in part to take advantage of Black Friday day/week sales.  It wasn’t always this way in Canada. While the U.S. has long had a tradition of Thanksgiving sales in November, Black Friday in Canada took off much later amid the emergence of online sales and competition with U.S. retailers.

Looking at clothing and electronics (popular holiday gifts) sales in Canada, we find that the big shift towards November sales occurred after 2010 (see chart). While the share of spending in November and December has been fairly stable (22-24% of annual total), more holiday spending now takes place earlier than before.

What’s in store for this holiday season? It depends on the survey. The Retail Council of Canada (RCC) in their annual shopping survey notes that Canadians expect to spend more than last year on holiday spending. On the other hand, surveys by Rakuten, KPMG and Deloitte point to a pullback. Across all surveys, one thing is clear: expect more bargain hunting than normal as many households struggle with elevated inflation and rising interest rates. The RCC survey highlights increased intentions for Black Friday shopping (40% of respondents vs. 28% last year).

What do Albertans spend more in the runup to the holiday season? As shown in the Chart of the Week, Alberta retail sales spike for clothing, electronics, and jewelry starting in November. Liquor retailers see a jump in December amid the holiday festivities. Do we spend less on anything in the final two months? Gasoline and autos sales max out in the summer months during the busy travel season and typically sag during the holiday season.  

Daily trivia

Answer to the previous trivia question: Women accounted for 59% of total enrolments at Alberta’s public colleges and universities in 2021/22?

Today’s trivia question: Black Friday is the big shopping day after U.S. Thanksgiving, but what is Gray Thursday?