By Robb M. Stewart
OTTAWA--Canadian shoppers once again cut back on spending in May following a rebound the month before, a sign of the stress household budgets continue to face with interest rates still high.
An advance estimate of retail receipts indicates sales retreated 0.6% from the month before in May, Statistics Canada said Friday.
That eats away at the jump in April sales, the first monthly rise this year. Data from Statistics Canada showed sales increased 0.7% from the previous month to a seasonally adjusted 66.80 billion Canadian dollars, the equivalent of about US$48.79 billion. The advance, the strongest since last September, was in line with the data agency's earlier forecast and the consensus estimate of economists.
April's increase was driven by sales at gas stations and fuel vendors, in large part with a rise in fuel prices that then retreated in May, and offset a drop in sales by car dealers. Stripping out gas stations and fuel vendors, sales rose a more modest 0.3% in April.
In volume terms, retail sales were up 0.5% from March, which while more subdued that the headline pace still suggests a tailwind to industry-level gross domestic product in a month when factory and wholesaler sales also recovered strongly. Still, CIBC Capital Markets' Andrew Grantham says when measured against Canada's continued strong population growth, per-capita sales saw a large decline in April.
"Individual households are continuing to make cut backs in spending in a high interest rate environment, and an acceleration is unlikely until rates come down more meaningfully," said the economist, who continues to expect the Bank of Canada will cut its policy interest rate three more times this year, including at its next meeting in July.
The central bank is keeping a close eye on economic data for indications that monetary policy can continue to be loosened. Earlier this month, it became the first Group of Seven central bank to offer rate relief when it trimmed a policy rate that had been unchanged for almost a year at a more than two-decade high.
The economy rebounded in the first quarter, notching annualized growth of 1.7% after stalling in the second half of last year. Inflation has cooled steadily in recent months, and while hiring has continued it has failed to keep pace with rapid population growth and the unemployment rate has continued to pick up. Household debt payments for Canadians rose again in the first quarter, led by a jump in mortgage payments that was driven by high interest costs, though the rise was outpaced by an increase in household disposable income.
South of the border, American shoppers lifted their spending last month and retail sales rose 0.1% from the month before following a 0.2% drop in April.
Further cuts to Canadian interest rates should bring relief to households and help stimulate retail sales in the coming months, though there will remain headwinds from elevated shelter costs, Florence Jean-Jacobs, principal economist at Desjardins, said. She also expects a second cut by the Bank of Canada next month, unless there is a surprise in inflation data for May due out early next week.
Receipts for April showed that the largest driver of sales for the month was recorded at gas stations, with sales rising for the first time in three months. Core retail sales, which exclude car and auto-parts dealers and gas stations, increased 1.4% in April, following a retreat of 0.7% the month before.
Supermarkets and other grocery stores led a rise in sales of food and drinks, the agency said. Receipts at beer, wine and liquor retailers were up for the first time in four months.
The agency also noted increases in sales at sporting goods, hobby, musical instrument, book and miscellaneous store retailers and health and personal care retailers.
Statistics Canada's sales estimate for May was based on responses of roughly 48% of retailers surveyed and will be revised.
Write to Robb M. Stewart at robb.stewart@wsj.com
(END) Dow Jones Newswires
06-21-24 1113ET
