EconoFACTS

July 19, 2024 | 08:56

Canadian Retail Sales (May) — Consumer Headwinds Still Blowing

Economist

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Canadian retail sales fell 0.8% in May, and the early reading for June was also down 0.3%. This continues a tough slog for Canadian retailers, with discretionary consumer spending under pressure from higher mortgage rates and living costs more broadly. Sales are still up 1.0% from a year ago, but considering population growth exceeding 3%, that’s hardly an encouraging performance.

Auto sales were up 0.8%, but gas station receipts fell 0.6%. Sales ex-autos fell 1.3%, while sales excluding both autos and gas were down a hefty 1.4%. Highlighting the softness, all major categories (beyond autos) were lower. Weakness was most pronounced in building materials (-2.7%) and furniture (-1.3%)—perhaps the soft housing market is biting related spending—food (-1.9%) and clothing stores (-1.5%). Regionally, the weakness was very widespread with all provinces but Nova Scotia registering declines in the month. From a year ago, Alberta (-1.8%) and British Columbia (-1.6%) are lagging, but most of Quebec and Atlantic Canada are seeing solid gains.

Retail volumes fell 0.7% in the month for the weakest performance in more than a year, adding to the softness of the report. That leaves sales volumes up a modest 1.0% from a year ago, and just 0.2% annualized over the latest six months. Goods inflation has melted (0.3% y/y as of June versus 4.8% y/y for services), with even core goods inflation (excluding gas and groceries) now slightly negative year-over-year. Anecdotes do suggest that, in some cases, retailers have too much inventory and are discounting.

The Bottom Line: Canadian consumer spending continues to struggle with the impact of past rate hikes and higher living costs. And, this runs counter to a robust/resilient U.S. retail sales report from earlier this week. For the economy broadly, this is consistent with StatCan’s initial estimate of slower 0.1% real GDP growth for May, and sub-2% growth for all of Q2. Like the Business Outlook Survey and inflation report earlier this week, this one is rate-cut supportive.

Table 1 - Canada — Retail Sales

(month/month % change : s.a.)

Source: BMO Economics, Haver Analytics