Retail sales continued to gain ground in May, rising by 0.6% during the month. In real terms, the picture was even better, with volumes up 1.1%.
May’s increase stemmed largely from sales at motor vehicle and parts dealers (2.4%), as total retail sales excluding autos were down 0.1%. Other areas of strength during the month included electronics and appliance stores (+1.2%) and food and beverage stores (0.9%). Most other subsectors reported declines during the month, led by general merchandise (-1.3%) and health and personal care (-1.3%) stores.
Regionally, the gains were broad based, led by B.C. (+2.6%) and Alberta (+1.6%). Only Quebec (-0.8%) and P.E.I. (-2.9%) recorded a drop in retail sales during the month.
Key Implications
The string of higher retail sales volumes recorded over the last few months certainly bodes well for overall growth during the second quarter, which is tracking just above 3%.
While a solid labour market performance should help to keep household spending at healthy levels, momentum is expected to fade over the second half of the year, as a cooling housing market in Ontario is likely to constrain demand for housing related items while rising interest rates take some steam out of consumer spending overall.
Indeed, despite a soft inflation backdrop, the better-than-expected performance of the Canadian economy – particularly on the domestic front – should allow the Bank of Canada to follow through will another rate hike in October, fully unwinding the emergency cuts that were put in place following the oil price collapse.
