Automotive and Food Sectors Lead the Decline
Canada’s retail sales contracted by 1.1% in May, marking a sharp shift in consumer behavior as economic uncertainty and U.S. trade tariffs began to take hold. The downturn was led by a 3.6% drop in sales at motor vehicle and parts dealers, particularly a 4.6% fall at new car dealerships, according to data from Statistics Canada. Excluding autos, retail sales slipped 0.2%, aligning with analyst expectations.
Sales also declined in key consumer categories. Food and beverage sales fell by 1.2%, with weaker demand at convenience stores and a notable decrease in alcohol purchases. In volume terms, total retail sales dropped 1.4%, reinforcing the narrative of a cautious consumer environment amid rising cost pressures and declining confidence.
Tariffs and Economic Outlook Weigh on Spending
The May results follow two months of relatively strong performance, buoyed by consumers advancing purchases ahead of expected U.S. tariffs. However, with the impact of those tariffs beginning to materialize, household spending showed signs of retreat. According to StatsCan, 32% of retailers surveyed reported being affected by trade tensions in May, only slightly down from 36% in April.
Common effects cited include price increases, shifting product demand, and higher operational costs related to shipping, labor, and raw materials. Economists have warned that without a significant easing of U.S.-Canada tariff pressures, consumer spending is likely to remain subdued, particularly as job insecurity and cost-of-living pressures grow.
June Rebound Possible, but Uncertainty Remains
Despite May’s contraction, preliminary figures from StatsCan suggest retail sales may have rebounded in June, with an estimated growth of 1.6%. While this flash estimate offers a glimmer of hope for GDP performance in the second half of the year, it remains subject to revision and hinges heavily on broader economic developments.
“Unless a trade deal is reached to significantly reduce U.S.-Canada tariffs, we expect households will continue to tighten their purse strings,” said Michael Davenport, senior economist at Oxford Economics. The Bank of Canada is expected to keep interest rates steady in its upcoming decision, but many anticipate renewed easing later in the year to bolster economic resilience.
Resilient Categories Offer Some Relief
Not all retail segments suffered in May. Sales of building materials, garden equipment, and supplies rose 1.9%, partially offsetting broader declines. This category had posted a 0.3% decline in April, making May’s rebound a modest but notable improvement. These gains suggest some areas of discretionary spending remain active, though they are unlikely to drive broader retail momentum in the face of trade friction and weak consumer sentiment.
Retail sales will remain a key indicator for Canada’s economic trajectory in the months ahead, especially as policymakers and households weigh the dual pressures of inflation and international trade dynamics.