Before we get too excited about May's three-year-high growth in Canadian retail sales, let's consider where it sits in the context of the latest trend. First, we were more than due for some action in the stores. Second, even with May's big number the retail trend looks pretty lacklustre.
Not to be too dismissive – May's 1.9-per-cent surge in retail sales was pretty impressive, far above the consensus forecast and the biggest monthly jump since March, 2010. It wasn't torqued by rising prices (indeed, prices were flat on the month, so sales volumes were also up 1.9 per cent), and although it got a big lift from the notoriously mercurial auto sector (which surged 4.3 per cent), sales ex-autos were nevertheless up a strong 1.2 per cent. The increase was broad-based, with nine of the 11 major retail sectors posting gains. Every province reported sales gains.
In short, there's very little to knock in the May report; it was an all-around strong month for retail activity.
However, let's remember that it comes after two months in which retail sales showed almost no growth at all (a combined 0.2 per cent for March and April). Indeed, in the six months prior to May, sales had risen a puny 0.3 per cent. That sort of number doesn't typically bode well for gross domestic product – roughly one-quarter of which is generated by household consumption of goods.
Recall that the May economic data also included stellar gains in employment (up an eye-popping 95,000 jobs) and housing starts (which surged above 200,000 annualized) – both good omens for ramped-up consumer activity. Perhaps the May number, collectively, are a sign that the economy turned a corner, after GDP grew a tepid 0.1 per cent in April. But another possibility is that May was just a bit of a catch-up month after the economy lost momentum earlier in the spring; we already know that job creation moderated substantially in June.
Still, May's retail pop does deliver some upside to the second-quarter GDP outlook. For the first two months of the quarter, retail sales are up 2.1 per cent; even if June's number were to come in flat, retail consumption looks like it should provide a decent positive contribution to GDP growth. With the housing sector (a major drag on GDP in recent quarters) also giving off stronger numbers, the consensus forecast for 1.7-per-cent annualized growth in the quarter is starting to look a bit on the low side.
Editor's note: An earlier version of this article incorrectly stated that nearly one-third of Canadian GDP is generated by household consumption. In fact, roughly one-quarter of GDP is generated by household consumption of goods.