Momentum in Canadian retail sales extended into June, with sales edging up 0.1% during the month. In real terms, the gains were even more pronounced, with volumes up by 0.5%.

June’s gains were led by higher sales at general merchandise stores (+2.9%), clothing and accessories stores (+2.7%) and building material and garden equipment dealers (+2.2%). Meanwhile, sales at motor vehicle and parts dealers (-1.4%) and gasoline stations (-1.8%) provided some offset. Excluding these two subsectors, retail sales were up 1.1% during the month.

Regionally, the results were mixed, with sales up in 5 provinces. B.C. (+1.9%) led the way, followed by Alberta (+1.0%) and Nova Scotia (+1.0%). Retail sales in Ontario were down 0.7%.

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Key Implications

Strong gains in sales volumes in recent months have pushed retail sales up by 2.1% in the second quarter as a whole. This bodes well for overall economic growth, which is tracking 3.7% for the quarter.

Going forward, this robust pace of growth is likely to moderate. The cooling housing market – particularly in Ontario – is likely to weigh on demand, especially for housing related goods. Meanwhile, rising interest rates should help to rein in household spending more broadly.

That said, credit channels remain healthy and overall consumer spending is projected to grow by close to 2% over the second half of this year, remaining a key support for the overall economy. As such, even with a moderation in household spending, the Bank of Canada is likely to remain in tightening mode, with another rate hike likely to come in the fall of this year.

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