Statistics Canada reports retail sales fell 0.1% in May to $51.5B

Canadian retail sales fell for the first time in four months as shoppers spent less at grocery and liquor stores in May.

Statistics Canada said retail sales fell 0.1% in May to $51.5 billion.

Economists had expected an increase of 0.3%, according to Thomson Reuters Eikon.

CIBC senior economist Royce Mendes said the weakness was relatively narrowly based, with only four of 11 sectors lower on the month.

“Food and beverage stores curiously represented the largest decline, odd for a series that should usually be quite consistent,'' Mendes wrote in a report.

“As a result, some of that softness could turn out to be transitory, but from a longer-term perspective, real sales have still shown little growth since the start of 2017.''

Sales at food and beverage stores decreased 2.0% in May after increasing for three consecutive months as sales at supermarkets and other grocery stores fell 2.0% and sales at beer, wine and liquor stores dropped 2.7%.

Clothing and clothing accessories stores saw sales fall 2.7%, while general merchandise stores dropped 1.1%.

Meanwhile, sales at motor vehicle and parts dealers edged up 0.5% and sales at cannabis stores rose 14.8%.

Excluding sales at motor vehicle and parts dealers and gasoline stations, retail sales fell 1.0%.

In volume terms, retail sales fell 0.5% for the month.

Benjamin Reitzes, Canadian rates and macro strategist at BMO Capital Markets, said there were a couple of factors that likely weighed on the retail sales.

“First, gasoline prices were up sharply in the month, pushing gas station sales up 3.5%. That spending tends to get diverted from other sectors,'' he said.

“And, the weather in May was simply awful, generally a negative for retail activity. The sectors hit hardest, clothing, sporting goods, alcohol, general merchandisers are consistent with bad weather.''

However, Reitzes noted that Canadians remain heavily indebted and that will likely restrain spending growth for years to come.

The weaker-than-expected retail sales report came as the Canadian economy has been showing signs of strength as it has bounced back from a weak end to 2018 and start to 2019.

The Bank of Canada kept its key interest rate on hold last week when it also released its updated monetary policy report.

In its forecast, the central bank raised outlook for second-quarter growth to an annual pace of 2.3% compared with its April projection of 1.3%. It predicted growth an annual pace of 1.5% for the third quarter.

The Bank of Canada stands in contrast to the U.S. Federal Reserve, which is expected to cut its key interest rate later this summer.