Alberta Retail Sales Fall

Alberta was the only province in the country in July to see year-over-year retail sales
drop into negative territory, according to data released Monday by Statistics Canada.

The federal agency said retail sales in this province declined by 0.9 per cent from July 2007 to July 2008 while at the national level retail sales have increased by 4.9 per cent.

[Insert record scratching sound here]

Alberta leads the nation in real estate price declines and now in retail activity. In consideration to the economic decline of the manufacturing sector in Eastern Canada, this simply shows that the "solid economic fundamentals" may not be solid afterall.

"Using the year-over-year level of sales alone, it would be tempting to
conclude that Alberta has the weakest economy in the country," said Hirsch. "It
was the only province where sales in July were lower than last year.

"But that impression would be incorrect. Sales per person in Alberta are
still by far the highest in the country."

He said that at $1,455 per person, retail spending in the province is 34 per cent higher than the national average of $1,083. But Hirsch said even that figure has come down over the past year. In 2006, retail spending in Alberta, he said, was more than 40 per cent above the national average.

Spending more than the average Canadian should not be used to as a metric of economic health. Albertans may make more money than an average Canada. This then equates to greater spending statistics. But Alberta is an inflationary (and CPI) leader in the nation so it is all relative. Consumer confidence is vital in triggering spending in an economy. In Alberta, we are constantly reminded that we live in the most financially insulated place on Earth. With that instilled confidence, retail activity should not be faltering. Perhaps the reassuring fundamentals were exaggerated? With the current global financial crisis, consumer confidence will not return to the utopia levels of the boom years. This will hurt demand for real estate. As seen in the recent pending sales statistics, there isn't a significant push in demand. Despite the new mortgage rules coming into affect on October 15, 2008, this shift in consumer spending will further downward pressure on home prices.

One simple explanation why retail activity may be down is that Albertans no longer have disposable income after bills and other necessary expenditures. The opportunity cost of carrying a large mortgage, discretionary income becomes a scarcity.

I believe the term is being "house poor."

As house prices continue to slide, it will be interesting to see what many upside down Albertans will do when they reevaluate their financial well-being.