Statistics Canada reported this morning that retail sales fell 1.1% in May, a bit worse than economists expected. Although the declines are concentrated in only three of nine sectors, they are steep enough to reduce total sales.
In terms of quantity, total retail sales fell by 1.4%.
Motor vehicles and parts dealers (-3.6%), gasoline stations and fuel suppliers (-1.4%), and food and beverage retailers (-1.2%) were the industries with the heaviest results in May.
Instead, the biggest growth in May came from dealers of building materials, garden equipment and supplies, which saw a 1.9% increase after a 0.2% decline last month. Sales at health and personal care retailers also climbed 0.7%, marking a 11th straight month of earnings.
More stable indicators of retail trade show less pessimistic situations. Core retail sales (excluding gas stations, motor vehicles and parts dealers) were basically flat in May.
Regionally, nine out of 13 provinces and territories reported a decline in May. The biggest drops were Ontario (-2.1%), New Brunswick (-1.5%) and Alberta (-1.0%). Nova Scotia was the only province to increase, with sales rising by 0.3%.
Online shopping also refused to start the summer, down 1.7% to $4.3 billion in May. E-commerce accounts for 6.2% of the total retail trade.
Retail sales rebounded in early June; economists believe tax rates are lowered
The decline in May is not surprising, as people generally expect a pullback in car sales.
Going forward, the agency’s early estimates for June showed a 1.6% increase in retail sales, suggesting that consumer spending may be stabilizing. Despite this, economists’ expectations for a strong rebound have eased.
“A good flash estimate in June suggests that the downward momentum of spending may be stable,” wrote BMO’s Shelly Kaushik. “With Canada and the United States’ efforts to reach a trade deal, it’s clear that more trade certainty can help Canadian consumers and broader economic activity.”
While it is hoped that greater trade certainty is maintained, businesses continue to feel the impact of tariffs. According to Statcan, 32% of companies reported a slight decline from 36% in April, impacted by trade tensions.
Other economists were cautious about June, pointing to broader indicators that hint at potential retail weaknesses.
“While we expect a possible reversal in June may be limited, the reversal may be limited. Core sales activity remains weak,” TD’s Maria Solovenia wrote in a research note. She noted that true per capita sales, which is often seen as a recession signal, is now down for the second straight month.
Solovenia also marked softened consumer data reflected by Bank of Canada’s latest sentiment index and TD’s internal spending figures, indicating that “quarterly momentum remains silent.”
However, some experts view June’s Flash data as an early sign of stronger third quarter. Andrew Grantham of CIBC pointed out that it has facilitated estimates of manufacturing goods, which showed moderate growth, although he warned that it remains a “trade-sensitive sector.”
“Early evidence suggests that the economy found a stronger position at the end of the second quarter, which could potentially resume growth in the second half of the year in the second quarter,” he wrote.
As for the upcoming interest rate decisions for the Bank of Canada, Grantham said he expects the bank to hold its policy rate next week, but added: “The interest rate cut may still be needed later this year to ensure growth is strong enough to end the slack established in the economy, which should start putting down pressure on core inflation.”
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Last modified: July 24, 2025
