Wheels on Fire! How Auto Sales Are Steering Canada's Retail Story (For Now, Anyway)

Well, here’s a twist you might not have seen coming, eh? It seems Canada’s retail scene had a bit of a spring in its step this May, defying — you could say — some of the prevailing gloom. Total retail sales, Statistics Canada just told us, climbed a noticeable 0.6 percent, nudging the national spend up to a rather hefty $66.9 billion.

And, in truth, that’s on the heels of a decent 0.4 percent jump we saw in April, once those numbers were all tallied up and revised.

But who, pray tell, is doing all the heavy lifting here? Honestly, if you were to guess, you might point to the usual suspects: maybe groceries, perhaps some fashion? Nope.

Not this time. It was the good old motor vehicle and parts dealers subsector that truly put the pedal to the metal. Their sales surged a solid 1.5 percent, essentially becoming the engine driving this entire retail train forward. Canadians, it seems, are still very much in the mood for new wheels, or at least the parts to keep them running smoothly.

And, look, they weren’t entirely alone in this upward trajectory.

General merchandise retailers, the big box stores and the like, chipped in with a respectable 1.9 percent increase. Even our daily bread, or rather, our food and beverage retailers, saw a modest but welcome 0.5 percent boost. So, it wasn't just car fever; there was a broader, albeit more gentle, hum across several parts of the economy.

Yet, as with any economic story, there are always a few areas that sag a bit, pulling against the tide.

Building material and garden equipment suppliers, for instance, took a 2.2 percent hit. Maybe the DIY craze is finally cooling down, or perhaps people are just too busy admiring their new cars to tend to their gardens, who knows? Gasoline stations, too, saw their sales dip by 1.8 percent. One could speculate on lower prices at the pump, or perhaps just less driving as folks tighten their belts.

Now, if we strip away the volatile bits—gasoline and, yes, those ever-present motor vehicles—what we’re left with is what the bean counters call "core retail sales." And those? They still managed to eke out a 0.4 percent increase.

Not quite as flashy, but certainly not a decline, which, in these uncertain times, is something to perhaps grudgingly celebrate. In volume terms, which factors out price changes, sales were up a more modest 0.2 percent. It suggests we’re buying a little more, but perhaps also paying a little more too.

But here’s the kicker, the part that gives us all pause for thought: Statistics Canada’s preliminary estimates for June are… well, let’s just say they suggest things are hitting a wall.

A projected 0.0 percent change. Stagnation. Flatlining. Whatever you want to call it, it paints a rather different picture than May's surprising bump. This, of course, aligns rather neatly with the broader whispers and outright shouts from economists about a slowing economy, a direct consequence, surely, of the Bank of Canada’s rather determined interest rate hikes.

So, while May might have been a bit of a joyride for some sectors, it seems the brakes are being gently, but firmly, applied as we head deeper into summer.