Retail sales decreased 1.1% to $69.2 billion in May. Sales were down in three of nine subsectors and were led by decreases at motor vehicle and parts dealers, reported Statistics Canada on Thursday.
Core retail sales—which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers—were relatively unchanged in May. In volume terms, retail sales decreased 1.4% in May, noted the federal agency.
“Feedback from respondents for May highlighted the effects of trade tensions between Canada and the United States on Canadian retail businesses. Supplementary questions asked to respondents show that 32% of retail businesses were impacted by the trade tensions in May, compared with 36% in April. The most common impacts in May were price increases, change in demand for product and increased expenses for raw materials, shipping or labour,” said Statistics Canada.
Following gains in each of the previous two months, motor vehicle and parts dealers (-3.6%) recorded the largest decrease in retail sales in May. The decrease was led by lower sales at new car dealers (-4.6%), which fell for the first time since February. The largest increase in the motor vehicle and parts dealers subsector in May came from automotive parts, accessories and tire retailers (+1.7%), said Statistics Canada.
Sales at gasoline stations and fuel vendors (-1.4%) decreased in May for a third consecutive month. In volume terms, sales at gasoline stations and fuel vendors fell 2.1%, it said.
“Core retail sales were relatively unchanged in May for a second consecutive month. The only subsector within core retail sales to post a decline was food and beverage retailers (-1.2%), which fell for the third month in a row. The decrease in this subsector was led by lower sales at beer, wine and liquor retailers (-2.9%), followed by supermarkets and other grocery retailers (-0.6%),” explained Statistics Canada.
“The largest increase to core retail sales in May came from building material and garden equipment and supplies dealers (+1.9%), which followed a decline of 0.3% in April. Sales were also up at health and personal care retailers (+0.7%) in May. This was the 11th consecutive month of gains in the subsector.”
On a seasonally adjusted basis, retail e-commerce sales decreased 1.7% to $4.3 billion in May, accounting for 6.2% of total retail trade, compared with 6.3% in April, added the federal agency.
“Statistics Canada is providing an advance estimate of retail sales, which suggests that sales increased 1.6% in June. Owing to its early nature, this figure will be revised. This unofficial estimate was calculated based on responses received from 52.7% of companies surveyed. The average final response rate for the survey over the previous 12 months was 90.4%,” it said.
Maria Solovieva, Economist, TD Economics, said the two-month surge in auto sales came to an abrupt halt in May.
“While we expect some rebound in June, the reversal will likely be limited. Core sales activity remains soft. On a real per capita basis – a metric that gained attention last year as a recession signal when adjusted for rapid population growth – sales are now in contraction for the second straight month,” she said.
“Consumer caution remains the dominant theme. Despite some recovery in traditional confidence measures, Canadians appear to be treading carefully as they assess the impact of tariffs. The Bank of Canada’s new sentiment index declined in Q2, weighed down by soft consumer spending data. Similarly, our internal Spend data suggests only a weak recovery in June, with quarterly momentum still muted. This persistent weakness in household demand will weigh on growth in the second quarter.”
An expected pullback in autos drove a soft retail sales figure for May. However, a decent flash estimate for June suggests the downward momentum in spending could be stabilizing. As Canada and the U.S. work towards a trade deal, it’s clear that more trade certainty can help support Canadian consumers and broader economic activity, said Shelly Kaushik, Senior Economist, BMO Capital Markets.
Andrew Grantham, Senior Economist, CIBC Capital Markets, said the rebound in retail sales during June is a good signpost for a return to GDP growth heading into the second half of the year, although with no detail available yet we don’t know how much of this advance is being driven by volatile elements such as auto and gasoline sales.
“Moreover, in inflation-adjusted terms June’s increase likely only just offsets the decline seen in May. While the Bank of Canada is widely expected to keep interest rates on hold next week, further rate reductions may still be needed later in the year to ensure growth is strong enough to close the slack that has built up in the economy, which should start to put downward pressure on core inflation,” he said.
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