CIBC ECONOMICS & STRATEGY
Economic Flash!
July 24, 2007
Canadians Stormed the Stores in May
* annualized
• Canadian retailers won’t see a month like May 2007 more than once in a decade, but the 2.8% rise in sales, with a 2.3% rise excluding autos, will leave its mark on second quarter economic growth, and on Bank of Canada thinking. The stars were aligned for a good month – Québec civil servants had a lump sum pay equity settlement to spend, the weather finally turned seasonal for spring clothing, renovations and outdoor equipment, and as has been the case for some time, spending plans were backed by a low jobless rate. Still, nobody saw this sort of month coming.
• Statistics Canada emphasized the impact of the Québec payout, but sales were up a heady 2.2% excluding that province, which would still have been the best national monthly gain since 2002. Indeed, Québec’s nearly 10% rise from a year ago was surpassed by three provinces (Sask, Alta, Nfld).
• Gains were broadly based across store categories, with items for the home (furniture, electronics etc.) a key exception in the month, but having registered strong gains earlier. Gas station’s 3.3% rise was price-related, but real retail sales as a whole were also up sharply. New car dealers saw a solid month, and sales by new and used dealers are up more than 11% from a year ago, despite reports of increased cross-border shopping by Canadians seeking lower US prices.
Implications & Actions
Re: Economic Forecast — One can be assured that this won’t happen again soon – particularly with the weather gods turning less favourable during central Canada’s summer shopping season. Still, after a modest gain in real manufacturing shipments, but big results for retail and wholesale trade, May looks to be a strong month overall, and Q2 GDP should now handily top 3%. The C$ climb will dent the forward-looking outlook for net exports (and the retail splurge will likely show up in higher imports ahead), but domestic demand will raise the odds of a second Bank of Canada hike in September.
Re: Markets — The data sparked a rally in the C$ to yet more multi-decade records, and should be supportive for related equities, while negative for fixed income markets.
