Statistics Canada says retail sales rose 0.3% to $70.1 billion in April, helped by gains at new and used car dealers. However, economists say they expect a slowdown ahead.
The agency says its preliminary figures for May point to a drop of 1.1% for that month.
Andrew Grantham, senior economist at CIBC Capital Markets, said in a note to clients Friday that as consumers continued to spend in April, the decline in May retail sales estimates “provides another indication that the economy is heading for a stall in Q2.”
“That renewed consumer caution amid tariff uncertainty and a weakening labour market is likely to persist for a little while yet, and we continue to expect two more 25 (basis point) interest rate cuts by the Bank of Canada in the second half of the year to help support a recovery,” he said.
Maria Solovieva, an economist at TD Bank, had a similar outlook regarding the early estimates for May, saying they set a “sombre tone” for the second quarter.
“In addition, our internal credit and debit card spending data shows a meaningful softening in spending through May, suggesting that consumers tightened their purse strings,” Solovieva said in a note to clients Friday.
“As a result, we expect real personal consumption expenditures to be flat this quarter, with consumer spending likely to contract in Q3 if U.S. tariffs continue to weigh on sentiment and job prospects.”
In April, six of nine subsectors posted gains, as sales at motor vehicle and parts dealers rose 1.9%, boosted by a 2.9% increase at new car dealers and a 2.1% rise at used car dealers.
As anticipated, Solovieva said consumers continued to “front-load” vehicle purchases ahead of expected price increases due to tariffs.
Sales at sporting goods, hobby, musical instrument, book and miscellaneous retailers rose 1%, while furniture, home furnishings, electronics and appliance retailers gained 0.8%. Sales at clothing, clothing accessories, shoes, jewelry, luggage and leather goods retailers fell 2.2%.
Core retail sales — which exclude gasoline stations, fuel vendors, and motor vehicle and parts dealers — gained 0.1% in April.
In volume terms, overall retail sales rose 0.5%.
Statistics Canada also noted that 36% of retail businesses reported being impacted by trade tensions in April. The most common effects included price increases, changes in demand and supply chain disruptions.