Canadian retail sales up 0.2% to $66-billion in May, boosted by gains at new car dealers

Canadian shoppers showed signs of cooling as Statistics Canada said Friday retail sales in May rose less than its early estimate for the month and suggested they were little changed in June.

The agency reported retail sales rose 0.2 per cent to $66.0-billion in May, helped by gains at new car dealers and grocery stores, however that was short of its early estimate for the month that pointed toward a gain of 0.5 per cent.

In volume terms, retail sales rose 0.1 per cent for May.

Statistics Canada also said its initial estimate for June suggested retail sales for that month were unchanged, but cautioned the figure would be revised.

TD Bank economist Maria Solovieva said May brought a sizable deceleration in retail spending growth after a revised increase of 1.0 per cent for April, which was reported last month at 1.1 per cent.

“The only sector that points to a decisive gain is auto sales, where both nominal and unit sales were up,” Solovieva wrote in a report.

“The rest of the categories are a mixed bag that points to consumers prioritizing spending on groceries at an expense of discretionary purchases.”’ Solovieva said the Bank of Canada expects that household consumption will slow over the course of next year as its interest rate hikes work their way through the economy.

“With today’s reading, there is evidence that this slowdown is materializing. Still, consumers have financial resources in the form of excess savings, so the path to moderation may not be a smooth one,” she said.

Sales at motor vehicle and parts dealers gained 0.8 per cent in May, helped higher by a 0.7 per cent sales gain at new car dealers and a 5.5 per cent increase in the other motor vehicle dealers category.

Meanwhile, sales at food and beverage retailers rose 1.0 per cent as sales at supermarkets and grocery stores gained 1.4 per cent.

Sales at clothing, clothing accessories, shoes, jewellery, luggage and leather goods retailers fell 0.8 per cent in May, while building material and garden equipment and supplies dealers dropped 1.5 per cent.

Core retail sales – which exclude gas stations and fuel vendors, along with motor vehicle and parts dealers – were unchanged in May.

A report Thursday by the Canadian Chamber of Commerce suggested that Canadian consumers kept spending in the second quarter, however it noted the spending turned a corner after the Bank of Canada resumed its interest rate hikes in early June.

Looking ahead, Chamber chief economist Stephen Tapp said he expects consumer spending to slow noticeably in the second half of the year, as people cut back on discretionary purchases.

The Bank of Canada raised its key interest rate by a quarter of a percentage point in June and another quarter of a percentage point earlier this month to bring its key policy rate to five per cent.

The increases by the central bank prompted the big commercial banks to increase their prime lending rates, raising the cost of variable rate loans such as variable rate mortgages and home equity lines of credit.

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