Canadian Retail Sales Drop 1.1% in May, Driven by Auto Sales

Statistics Canada reported a 1.1% decrease in retail sales to $69.2 billion in May, primarily due to declines at motor vehicle and parts dealers. However, preliminary figures for June suggest an increase of 1.6% for that month. In May, three of nine sub-sectors experienced a decline, with motor vehicle and parts dealers experiencing a 3.6% decrease, new car dealers having 4.6% lower sales, and gasoline stations and fuel vendors experiencing a 1.4% decrease.

The decline was expected, but it appears the economy managed to find a firmer footing towards the end of the second quarter. 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 details are not yet available. The Bank of Canada kept interest rates on hold, but further rate reductions may still be needed later in the year to ensure growth is strong enough to close the slack in the economy and put downward pressure on core inflation.

Core retail sales, which exclude gasoline stations and fuel vendors, were relatively unchanged in May. Food and beverage retailers saw a 1.2% decline, while building material and garden equipment and supplies dealers rose 1.9%. Health and personal care retailers also saw a 0.7% increase in sales. Overall retail sales decreased 1.4% in May.

Source: Globe and Mail
Source: The Star
Source: Statistics Canada

Canadian GDP Shrinks Modestly in May, but June Rebound Could Lead to Flat Second Quarter

Canada’s economy contracted for a second consecutive month in May, with real GDP falling 0.1%, matching the decline in April. The drop was attributed to goods-producing sectors, particularly in mining, quarrying, and oil and gas extraction. Wildfires in the Prairies temporarily dragged down oil and gas activity. However, Canada’s services sectors are holding up relatively well, as trade-exposed industries feel some sting from U.S. import duties. Manufacturing, one of the most tariff-exposed sectors of the economy, continues to face headwinds, with growth of 0.7% in May but not enough to fully recoup a 1.8% drop in April. StatCan’s early estimates also see the industry contracting again in June.

Transportation and warehousing also rebounded from an April decline. The good news is that the Canadian economy seems to have soldiered through the period of maximum trade uncertainty with less damage than initially expected. StatCan’s early estimates for June show an expected rebound of 0.1% in real GDP, driven by strength in retail and wholesale trade. The agency said its advance reading for the second quarter of the year shows the economy was essentially flat.

Marc Ercolao, an economist with TD Bank, expects these conditions to broadly persist until Canada can secure a trade deal with the United States. As long as there is this lingering uncertainty, it will impact economic activity across industries and investment decision-making and likely lead to another weaker Q3.

The Bank of Canada held its policy rate steady at 2.75 percent for a third consecutive time amid signs of resilience in the Canadian economy. The central bank will get two more looks at inflation before its next interest rate decision on Sept. 17, which Ercolao said would have a bigger say in where interest rates head from here.

StatCan said a busier May for home resales, particularly in Toronto, saw activity tick up in the real estate and rental industry. With three Canadian teams advancing to the second round of the NHL playoffs, StatCan said the spectator sports industry was on the rise in May. The public sector also saw declines after a run-up of activity tied to the federal election in April.

Source: Globe and Mail
Source: The Star
Source: Financial Post
Source: Statistics Canada