Highlights:
- Nominal retail sales in May rose a stronger than expected 0.6% following gains of 0.7% and 0.6% in April and March, respectively.
- The increase was boosted by a stronger-than-expected 2.4% surge in motor vehicles sales that more than offset gasoline station receipts dropping a smaller than expected 0.6%.
- Sales volumes rose 1.1% following a 0.2% drop in April and a 1.3% surge in March.
Our Take:
The 0.6% monthly gain in May retail sales extends the pace of solid increases to three consecutive months. This has contributed to the nominal value of sales rising a strong 7.3% over the past year and compares to the average increase in 2016 of a little over 5%. Part of this strengthening is attributable to higher energy prices that sent gasoline station receipts up by a double digit rate over the past year. However, the overall volume of May retail sales, which eliminates the impact of higher prices, is up a solid 6.4% from a year ago and compares to a 2016 average increase of 4%. This strengthening in consumer spending growth is clearly benefitting from sustained gains in employment over the first half of this year along with low financing costs.
Strength in consumer spending has been a factor contributing to overall GDP rising at an above-average pace from the third quarter of 2016 through the first quarter of this year. Partial second quarter data is indicative of this pace being sustained for a fourth consecutive quarter. This strength in growth, and seemingly easing concerns about "external impediments" such as aggressive U.S. trade protectionism, contributed to the Bank of Canada hiking the overnight rate 25 basis points to 0.75% earlier this month. Our forecast assumes that with growth continuing at an above average pace, official rates will rise a further 75 basis points by the end of 2018 to 1.50%.
