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Fred Lum/Fred Lum/The Globe and Mail

Canadian consumers seem to be using the tail end of the recession - and the government incentives that come with it - to spruce up their homes.

Sales at stores selling hardware, building materials and home supplies are on the rise, according to Statistics Canada.

And home renovators say they've seen an increase in business as homeowners figure out how to take full advantage of the federal government's new tax credit for renovations.

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"There is a universal feeling that - while on balance, it promotes 'do-it-yourself-ism' - it has resulted in an increase in calls," said Don Johnston, director of technology and policy for the Canadian Home Builders Association.

Over all, retail sales rose a significant 1.2 per cent in May from a month earlier, surpassing analysts' expectations and more than offsetting the 0.6 per cent decline in sales in April.

Retail sales totalled $34-billion in the month, with increases in seven of eight retail sectors more than offsetting the small decline seen in April.

While part of the increase in sales was because of higher prices, the actual volume of sales rose too, up 0.7 per cent from a month earlier.

Sales are still down 4.9 per cent compared to a year ago, but have been recovering gently since touching a low point at the end of last year - mainly because of increased purchases of new cars, and more recently, home renovation materials.

"While spending here is no ball of fire, it is gradually climbing back from the lows at the start of the year, with consumers poised to moderately contribute to the recovery," said Douglas Porter, deputy chief economist at BMO Nesbitt Burns.

In May, renewed consumer interest in new vehicles, especially light trucks, led the way. Sales in the automotive sector rose 2.4 per cent from April, with new car sales increasing 3.4 per cent and gasoline sales rising 0.9 per cent.

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Still, new car sales have a long way to go to make up for the carnage of the past year. May's sales were 11.6 per cent lower than a year earlier.

In addition to small trucks and vans, consumers focused their shopping on building and home supplies, Statscan noted. That sector saw its sales rise by 1.0 per cent - double the rate of increase seen in April. Home centres and hardware stores were particularly busy, as were outlets selling specialized building materials and gardening supplies.

In keeping with Canadians' renewed focus on their homes, sales of furniture, decorations and electronics rose 0.5 per cent, the first increase since last July.

"The combination of these factors suggests that Canadians are taking advantage of the home repair tax credit that the government is offering," observed Charmaine Buskas, senior economics strategist at TD Securities.

As part of the stimulus package in the last federal budget, Ottawa offered home owners a tax rebate for home renovations costing up to $10,000. The aim of the credit was two-fold: to offset the downturn in new home construction, and to encourage some of the under-the-table deals that are common in the renovation business to become legitimate.

The federal plan is taking hold on both fronts, said Mr. Johnston.

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"There's more activity, and there's also a feeling there's a surfacing of activity that would have been underground."

Housing starts have plunged about 60 per cent from their peak of last year, and the federal tax credit is helping, somewhat, to soften the blow on the construction industry, said Alex Carrick, chief economist at Reed Construction Data. Employment in the construction sector was hit hard last fall and winter, but began to climb again recently. Construction jobs increased by 0.7 per cent in June compared to a month earlier, but employment in the sector was still 6.0 per cent lower than a year earlier.

"I think there's a lot of people who are trying to take advantage of the credit, and that's partly why the market hasn't done so badly," Mr. Carrick said.

Still, the renovation frenzy probably won't last, he added. The tax incentive is likely just bringing forward activity that would have happened any way.

"It'll be pretty short lived."

The Bank of Canada seems to have the same concern. In a statement on Tuesday, the central bank warned that some of the momentum that is becoming obvious in the Canadian economy these days may fade.

"Some of the early strength in domestic demand represents a bringing forward of household expenditures," the bank said.

Still, the federal stimulus for infrastructure is only just beginning to touch the construction industry in Canada, and is likely to pick up speed, Mr. Carrick said. While non-residential construction has fallen off dramatically, of the new projects being started, most of them are government funded.

"The stuff is starting to come, and it's going to make an impact in the second half of the year," he said.

Consumers also increased their purchases of beer and wine in May - as has been common during this recession.

But shoppers enjoying a drink on their newly built decks were ignoring their wardrobes. Sales of clothing and accessories were mainly flat.

By region, retail sales climbed in nine out of 10 provinces, notably in Ontario, where retailers saw a 1.5 per cent gain. Prince Edward Island was the only province to post a decline.

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