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May Thaw Brings Canadians Back to the Shops

Canadian retail sales climbed 2.0% in May, a solid recovery from April’s (revised) 0.9% drop, which Statistics Canada attributed to inclement weather in many parts of the country. The sales gain was all due to more goods being sold, as constant-dollar sales were also up 2%.

The growth was largely a function of a recovery of motor vehicle and parts sales (+3.7%) and gasoline stations (+4.3%). Nominal sales excluding these categories were up 0.9%.

Most trade categories saw sales rise in May, with the exception of the sizeable food and beverage category, where sales fell 2.1% on weakness at supermarkets.

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E-commerce sales, reported on a year-on-year basis, continued to roar ahead, up 16.9%, more than tripling the 5.5% yearly pace marked by overall sales.

Regionally, Quebec (+3.0%) and Ontario (+2.6%) did the heavy lifting, although sales rose in most (7 of 10) provinces.

Key Implications

The May thaw seems to have not only hit April’s ice, but also consumers wallets. A rebound was to be expected given the weather effects that kept some Canadians at home in April, but the jump in May more than made up for this set-back.

It is important not to get too carried away with this data – keep in mind that retail sales activity only captures about a fifth of overall consumer spending. Taking a longer-term view, the six month trend in this indicator is effectively in line with its long-run average, while the trend in volumes is effectively flat.

Still, the strong showing in May sends our Q2 real GDP tracking to a robust 2.9% – basically in line with the Bank of Canada’s most recent forecast. To that end, the fact that consumer spending on cars remains healthy despite rising borrowing costs suggests that the tightening cycle still has lots of room to run.

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