Statistics Canada says retail sales decreased 1.1 per cent to $69.2 billion in May, driven by sales declines at motor vehicle and parts dealers.
However, the agency said its preliminary figures for June point to an increase of 1.6 per cent for that month.
For May, three of nine subsectors were down as sales at motor vehicle and parts dealers decreased 3.6 per cent, led by 4.6 per cent lower sales at new car dealers. Sales at gasoline stations and fuel vendors decreased 1.4 per cent.
The decline in May was largely expected, but it appears the economy "managed to find a firmer footing towards the end" of the second quarter, said Andrew Grantham, senior economist at CIBC Capital Markets.
"The rebound in retail sales during June is a good signpost for a return to GDP growth heading into the second half of the year, although with no detail available yet we don't know how much of this advance is being driven by volatile elements such as auto and gasoline sales," said Grantham in a note to clients.
"While the Bank of Canada is widely expected to keep interest rates on hold next week, further rate reductions may still be needed later in the year to ensure growth is strong enough to close the slack that has built up in the economy, which should start to put downward pressure on core inflation."
Core retail sales, which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers, were relatively unchanged in May.
The only subsector within core retail sales to post a decline was food and beverage retailers, down 1.2 per cent, led by lower sales at beer, wine and liquor retailers, along with supermarkets and other grocery retailers.
Building material and garden equipment and supplies dealers rose 1.9 per cent. Sales were also up 0.7 per cent at health and personal care retailers in May.
In volume terms, overall retail sales decreased 1.4 per cent in May.
Statistics Canada also noted that 32 per cent of retail businesses said they were impacted by trade tensions in May, compared with 36 per cent in April.
Some of the most common impacts included price increases, change in demand for product and increased expenses for raw materials, shipping or labour.
Unless a trade deal is reached to significantly reduce U.S.-Canada tariffs by the upcoming negotiation deadline of Aug. 1, "households will continue to tighten their purse strings as job losses and higher prices from tariffs squeeze disposable income," said Michael Davenport, senior economist at Oxford Economics.
"Households reined in their spending in May amid elevated trade policy uncertainty and a softening labour market," said Davenport in a note.
"Despite early indications of a sales rebound in June, we think momentum in consumer spending will continue to fade as the downturn from the trade war broadens to the household sector."
This report by The Canadian Press was first published July 24, 2025.
Sammy Hudes, The Canadian Press
