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Stunning retail sales point to stronger economic growth: economists

The big contributor was motor vehicle and parts dealers, which saw sales pick up 4.3%.


OTTAWA – Canadian consumers went on a shopping spree in May, triggering a stunning jump in retail sales that will almost certainly help boost second-quarter economic growth beyond expectations.

The raw numbers stunned economists that had expected a modest 0.4% bump. Instead, Statistics Canada said the retail sector boosted sales five times that by 1.9% during the month to $40.4 billion.

Particularly meaningful for gross domestic product growth, sales in volume terms also expanded by 1.9%, meaning the increase was not related to currency fluctuations.

“It’s hard to say what happened, everything went right it seems,” said Jimmy Jean, an economist with Desjardins Capital Markets. “We’re probably seeing a little bit of catch-up because since 2011 sales have been almost flat. In the first quarter we had consumer spending rising 0.9% (annualized). It was one of the weakest numbers since the recession.”

For the second quarter which began in April, however, retail sales are tacking at an eight per cent clip in volume terms.

Jean said the report puts in jeopardy the Bank of Canada’s bleak expectation for a meagre 1% growth number in the second quarter. For GDP to drop that low after the first quarter’s 2.5% expansion – and given relatively rosy numbers since – the bank would need to be proven prescient in estimating a 1.3-point hit from the Alberta floods and Quebec construction strike in June.

Other economists also doubted the quarter would show such weakness. CIBC chief economist Avery Shenfeld, who is rarely counted among the bulls on growth, believes the retail number likely means his 1.6% forecast is likely a couple of ticks too low.

“With sales up 1.9% in real terms, forecasts for May GDP will be revised higher, as will our forecast for Q2,” he said in a note to clients.

The Statistics Canada report showed strength throughout the retail sector and included a minor upward revision on April sales to 0.2%.

The big contributor was motor vehicle and parts dealers, which saw sales pick up 4.3% in dollar terms.

“Sales were up at new car dealers (3.3%) for a fifth consecutive month, mainly because of higher sales of light trucks,” Statistics Canada reported.

Overall, sales increased in nine of 11 sectors and in all 10 provinces. The two sectors that fell were at electronics and appliance stores (down 0.8%) and miscellaneous store retailers (down 0.5%).

©The Canadian Press