Canadian Retail Sales (May 2024)

Retail sales decline in May, expected to soften further in June

• Retail sales declined by 0.8% month-on-month (m/m) in May, reversing sharply from a downwardly revised print of +0.6% m/m in April (vs. +0.7% m/m reported earlier). This was lower than Statistics Canada's advanced estimate.
• Adjusting for the impact of inflation, the volume of retail sales was down 0.7% m/m in May.
• The only bright spot in today's report was sales at motor vehicle and parts dealers, which gained 0.8% m/m as sales at both new and used car dealers moved higher. 
• Receipts at stations and fuel vendors registered a loss of 0.6% m/m in nominal terms but gained 1.0% in volumes terms.
• Excluding auto sales and receipts at gas stations, core retail sales were down by 1.4% m/m in May -  much lower than the 0.5% m/m decline estimated by the consensus. Moreover, April's increase was revised lower to 1.2% m/m from 1.4% m/m, reported originally.
• Today's losses were led by food and beverage stores (-1.9% m/m), building material/garden equipment/supplies dealers (-2.7% m/m), and general merchandise retailers (-1.0% m/m). But sales were down across all other major categories with an exception of furniture retailers (+0.3% m/m), and sporting goods & music stores (+1.9% m/m).
• E-commerce sales were also weaker on the month, contracting by 3.6% m/m following four months of strong growth. Notably, April's figure was upwardly revised from contraction to gain.
• Statistics Canada's advanced estimate for June indicates a 0.3% m/m loss.

Key Implications

• April's momentum in retail sales proved to be short-lived, with a sharp reversal in May and an expected sluggish performance in June. Our internal credit and debit card spending data also indicate softness. Although certain sectors, particularly services, show some resilience, the overall spending trajectory suggests that consumers remain cautious, preferring to build precautionary savings rather than spend.
  
• Considering this, real personal spending is tracking around +0.7% (quarter-on-quarter annualized) in Q2. Today's report adds further to the evidence that the BoC will cut rates when it meets next week.               

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