(OTTAWA) Canadian consumers began to show signs of fatigue in May, as Statistics Canada reported on Friday that retail sales for that month advanced less than its initial estimate had expected, while its preliminary numbers for June show little change.
According to the federal agency, retail sales rose 0.2% to $66.0 billion in May, helped by gains at new motor vehicle dealers and grocery stores. Its initial estimate for May, however, called for growth of 0.5% for that month.
Expressed in volume, retail sales rose 0.1% in May.
Statistics Canada also said its preliminary estimate for June suggested retail sales were unchanged, but warned that figure would be revised by its official release, a month from now.
At Desjardins, we openly ask the question: is this slowdown just the beginning? “Retail sales are clearly running out of steam. Purchases are lower than the consensus forecast. Three of the past four months have ended with timid growth or even decline, with further signs of weakness in June. The new 25 basis point hike in key interest rates announced earlier this month should affect consumers in July and beyond,” writes Marc Desormeaux, senior economist at Desjardins.
The financial institution says the May data and downward revisions to the April figures have had the effect of “gradually reducing” its forecast for real gross domestic product (GDP) growth for the second quarter of 2023, but it remains in the range of 1.5% to 2.0% (quarterly change, annualized).
TD Bank economist Maria Solovieva also observed that May saw a significant deceleration in retail spending growth, after posting a revised 1.0% increase for April. An increase of 1.1% was initially reported for the month of April.
“The only sector showing a decisive gain is in auto sales, where both nominal and unit sales have increased,” Ms.me Solovieva in a report.
“The rest of the categories are mixed and seem to indicate that consumers are prioritizing grocery spending over discretionary purchases. »
Mme Solovieva said the Bank of Canada expects household consumption to slow over the next year as its interest rate hikes ripple through the economy.
With today’s reading, we have proof that this downturn is materializing. Yet consumers have financial resources in the form of excess savings, so the path to moderation might not be straightforward.
Maria Solovieva, economist at TD Bank
Sales at motor vehicle and parts dealers rose 0.8% in May, led by a 0.7% increase in sales at new car dealers and a 5.5% increase in the category of other motor vehicle dealers.
Meanwhile, sales at grocery retailers rose 1.0%, while those at supermarkets and other grocery stores climbed 1.4%.
Sales at clothing, clothing accessories, footwear, jewellery, luggage and leather goods retailers fell 0.8% in May, while those at building materials and garden equipment and supplies dealers fell 1.5%.
Core retail sales – which exclude gas stations and fuel dealers, as well as motor vehicle and parts dealers – were unchanged in May.
A report released Thursday by the Canadian Chamber of Commerce suggested Canadian consumers continued to spend in the second quarter, while noting spending reversed after the Bank of Canada resumed interest rate hikes in early June.
House Chief Economist Stephen Tapp said he expects consumer spending to slow significantly in the second half of the year as people reduce their discretionary purchases.