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Canadian Retail Sales Bounced Back Solidly in May

Highlights:

  • Retail sales rose 2.0% both in nominal and volume terms to reverse a big 0.9% drop (-1.1% volumes) in April.
  • Retail sale volumes are tracking a solid rebound in Q2 as a whole after a soft start to the year in Q1
  • We are tracking a 0.2%-0.3% increase in overall May GDP. That would mark the fourth straight month of increases and would seemingly confirm that the slowing to a 0.1% increase in April was more tied to transitory factors than a fundamental slowdown in growth.

Our Take:

The rebound in May retail sales seemingly confirmed that a big drop in April was more a result of bad weather in parts of the country than fundamental weakness. A big 3.7% rebound in motor vehicle sales after a 3.8% April drop accounted for much of the overall increase. Sales were also up 1.4% excluding motor vehicles and parts, though, with gains posted in 8 of 11 subsectors.

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Excluding the impact of prices, sale volumes also rose 2.0%. That combined with a solid increase in manufacturing sales reported earlier this week adds to the evidence that overall GDP increased for a fourth straight month in May — and likely at a faster pace than the 0.1% increase in April. Overall growth in the economy increasingly looks to have bounced back to an ’above-trend’ rate in Q2 after slowing to 1.3% in Q1. Data to-date is tracking somewhat stronger than our call for a 2.2% Q2 GDP increase. Uncertainty around the outlook remains, not least tied to concerns about a possible escalation in trade disruptions with the U.S. For now, though, the current economic backdrop continues to look solid.

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