Bad weather unexpectedly hits Canada retail trade, setback seen as temporary

OTTAWA (Reuters) - The value of Canadian retail trade unexpectedly dipped by 0.1% in May as unusually bad weather hit sales of food, drink and clothing, prompting analysts to predict the setback would be temporary.

FILE PHOTO: The Montreal city skyline is seen from Mont Royal in Montreal, Quebec, Canada, May 31, 2018. REUTERS/Hyungwon Kang/File Photo

Statistics Canada on Friday said sales fell in four of the 11 subsectors, representing 39% of total retail trade. The overall decline was the first in four months.

A Reuters poll of market operators had predicted retail trade would rise 0.3% from April.

Sales of food and drink dropped by 2.0%, which Statscan linked to unseasonably cold weather across Canada and heavy rainfall in some major cities. It was the largest month-on-month decrease since a 2.4% fall in January 2015.

The poor conditions also helped cut sales of clothing and clothing accessories by 2.7%.

“The weather in May was simply awful, generally a negative for retail activity. The sectors hit hardest ... are consistent with bad weather,” said Benjamin Reitzes of BMO Capital Markets. “(This) should reverse in next month’s report.”

The Canadian dollar slipped on the data, hitting a nine-day low of C$1.3102 to the U.S. dollar, or 76.23 U.S. cents.

Gasoline station trade rose for the fourth consecutive month, increasing by 3.5%. Cannabis stores notched a 14.8% jump in sales, the third consecutive month of double-digit growth.

Only Ontario and Quebec - the two most populous of Canada’s 10 provinces - posted gains. Sales in the remaining eight fell.

Nathan Janzen of RBC Economics Research predicted food and drink sales would recover, adding that “the details of the May report don’t look quite as soft as the headline”.

He noted that other indicators being studied by the Bank of Canada, such as jobs, were performing well. The central bank last week sharply hiked its forecast for annualized second quarter growth.

The bank, which has kept interest rates on hold since last October, says it is closely watching data as it decides what to do next. Markets expect no change for the rest of the year.

“Retail sales and consumer spending more generally should trend higher in 2019, albeit only modestly, supported by tailwinds from solid labor market conditions, wage gains, and reduced borrowing costs,” said Omar Abdelrahman of TD Economics.

Reporting by David Ljunggren; Editing by Chizu Nomiyama and Jonathan Oatis