Statistics Canada says retail sales up 0.2% to $66 billion in May

Sales at supermarkets and grocery stores gained 1.4%

Canadian shoppers showed signs of cooling as Statistics Canada said Friday (July 21) 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% 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%.

In volume terms, retail sales rose 0.1% 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% for April, which was reported last month at 1.1%.

"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% in May, helped higher by a 0.7% sales gain at new car dealers and a 5.5% increase in the other motor vehicle dealers category.

Meanwhile, sales at food and beverage retailers rose 1% as sales at supermarkets and grocery stores gained 1.4%.

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

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.

This ad will auto-close in 10 seconds