Canada: Retail Sales Rise in May as Real Activity Rebounds

• Retail sales rose 1.0% month-on-month (m/m) in May, in line with Statistics Canada’s advance estimate.
• In volume terms, retail trade was up 0.3% m/m, pointing to a rebound in underlying demand.
• Motor vehicle and parts dealers posted a 0.7% m/m increase, driven by higher sales at new car dealers (+0.5% m/m).
• Receipts at gasoline stations and fuel vendors rose 3.1% m/m, however volumes fell 0.7% m/m, suggesting the headline gain was largely driven by prices.
• Core retail sales (excluding autos and gasoline) rebounded after two consecutive monthly declines, rising 0.9% m/m. All major categories posted gains, but the advance was driven by a 1.0% m/m rise at general merchandise stores.
• Retail e-commerce sales declined 1.5% m/m in May.
• Statistics Canada’s advance estimate points to a 0.4% m/m increase in June.

Key Implications

• May delivered a solid month for retail sales, with core spending and real activity rebounding after two consecutive monthly declines. While Statistics Canada’s advance estimate points to slower nominal sales growth in June, last month’s fall in consumer prices suggests this mostly reflects a price effect and not weaker demand. Our internal TD Spend data reinforces that view, with services spending continuing to strengthen in June, supported by FIFA-related activity and recent federal government income support measures. Taken together, this points to a stronger outlook for real personal consumption growth in Q2 than currently embedded in our forecast.
• The durability of this experience remains an open question. Oil prices have resumed their climb this morning and, while they remain below the highs reached in April, they still represent an incremental tax on household purchasing power, particularly for lower-income consumers.