• Retail sales declined 0.1% in May.
  • Excluding prices, sales were down 0.5%.

The details of the May report don’t look quite as soft as the headline. Most of the month-over-month decline was attributed to an unusually large 2.0% drop in food & beverage store sales that will probably reverse at some point. Sales increased in 7 of 11 subsectors – including another sizeable monthly rise in sales at furniture stores. That latter increase probably has something to do with stabilization in housing markets in recent months.

To be sure, overall retail purchases have still been on the soft side. Sale volumes were down 1% from a year ago and are tracking little if any increase in Q2 from Q1. But other developments have arguably been more favourable for the near-term household spending outlook. Labour markets remain solid. The unemployment rate is still sitting around multi-decade lows and wage growth has strengthened in Q2. And consumers do not seem to be as pre-occupied as businesses with lingering risks to global growth from US-China trade tensions. Consumer confidence ticked up to its highest level since January 2018 in July. Obligated household debt payments are still taking up a significantly larger share of household incomes than they were a year ago – but the dramatic pullback in interest rates in recent months means the debt service ratio might not rise much further if at all. Spending growth is still likely to be subdued in Canada compared to years past, but downside risks have arguably eased compared to a few months ago.


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