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 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 1.0% for April, which was previously reported at 1.1%. “The only sector that points to a decisive gain is auto sales, where both nominal and unit sales were up,” Ms. 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.” Ms. 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 1.0% as sales at supermarkets and grocery stores gained 1.4%. Meanwhile 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 new report by the Canadian Chamber of Commerce suggested that Canadian consumers kept spending in the second quarter, however it said 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 5%. 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.

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

U.S. Retail Sales Miss Expectations in June, but Underlying Spending Strong

U.S. retail sales rose less than expected in June as receipts at service stations and building material stores declined, but consumers boosted or maintained spending elsewhere, which likely kept the economy on a solid growth path in the second quarter. Overall, the mixed report from the Commerce Department painted a picture of consumer resilience, though slowing momentum in spending growth. 

Retail sales increased 0.2% in June. Data for May were revised higher to show sales gaining 0.5% instead of 0.3% as previously reported. Economists polled by Reuters had forecast retail sales gaining 0.5%. Retail sales are mostly goods and are not adjusted for inflation. They rose 1.5% year-on-year in June.

Spending has remained strong despite 500 basis points worth of interest-rate hikes from the Fed since March, 2022, when the U.S. central bank kicked off its fastest monetary policy tightening cycle in more than 40 years.

A tight labour market continues to boost wage gains while some households still have savings accumulated during the COVID-19 pandemic. Consumers’ purchasing power is also gradually rising as inflation subsides.

Online sales surged 1.9%, the most in six months. Further gains are likely after Amazon hosted its Prime Day promotion in July, which was the biggest on record.

Receipts at furniture stores increased 1.4% and electronics and appliance store sales advanced 1.1%. But receipts at building material and garden equipment supplies dealers dropped 1.2%. Grocery store sales fell as did receipts at department stores. 

“Decreased spending on gasoline indicates that lower- and middle-income households are economizing on discretionary spending, reflecting cost-of-living pressures,” said Bill Adams, chief economist at Comerica Bank in Dallas. “Big crowds at airports and sky-high prices for concert tickets point to robust spending by wealthier households this summer, though.”

Excluding automobiles, gasoline, building materials and food services, retail sales increased 0.65% in June. Data for May were revised slightly up to show these so-called core retail sales increasing 0.3% instead of the previously reported 0.2%.

Core retail sales correspond most closely with the consumer spending component of gross domestic product. June’s solid rise and May’s upward revision to core retail sales suggest that consumer spending, which accounts for more than two-thirds of the U.S. economy, continued to grow last quarter. The pace was, however, probably slower than the first quarter’s rate, which was fastest in nearly two years.

Economists at Bank of America Securities raised their second-quarter GDP estimate to a 1.7% annualized rate from a 1.5% pace. The economy grew at a 2.0% rate in the January-March quarter.

“The economy is plodding along without overheating,” said David Russell, vice-president of Market Intelligence at TradeStation. “This is modestly positive news for investors worried about the Fed needing to hike after July.”

While consumers are holding up, manufacturers are wilting under the onslaught of higher rates. A separate report from the Fed showed manufacturing output dropped 0.3% in June after falling 0.2% in May. The weakness in manufacturing is mostly confined to goods production, with industries related to services like travel continuing to expand. “We expect this dynamic to continue in coming months, although recent resilience of economic activity, with our expectation for a recession pushed to first half of 2024, could even keep manufacturing production somewhat more supported,” said Andrew Hollenhorst, chief economist at Citigroup in New York.

Source: Globe and Mail