07/22/2011 10:50 EDT | Updated 09/21/2011 05:12 EDT

Retail sales up slightly in May, a stronger back-to-school season expected

Flickr: Wendel F.
MONTREAL - Consumers bought garden equipment, building materials and sporting goods due to better weather in May, sending up retail sales modestly for the month and leading some economists to predict that growth will revive in the months ahead.

Statistics Canada said Friday that sales edged up 0.1 per cent in May to $37.5 billion with declines at car dealers and food and beverage stores.

"If the underlying trend of consumer spending is strength, which is what we expect in the second half of the year, then that would bode well for a stronger back-to-school shopping season," said RBC economist Nathan Janzen.

TD economist Sonya Gulati predicted the second quarter from April through June will represent a "soft patch" for retail sales.

"Indeed, we anticipate better, but not great numbers for the important back-to-school retail period," Gulati wrote in a research note.

However, she said consumers won't represent the "engines of growth they once were at the onset of the recovery."

Other reports have noted that consumers have been working to reduce their debt loads, which have risen during a sustained period of extremely low interest rates that were brought in to stimulate the economy during the 2008-09 recession.

Consumers have also been hit with higher prices for fundamentals such as food, fuel and homes, which have diverted money away from other purchases.

But Janzen said he expects a pick up in consumer spending for the rest of 2011.

"Employment is increasing, incomes are increasing. These fundamentals should allow consumer spending to rebound in the second half of this year," he said from Toronto.

He said he doesn't expect oil prices to keep heading upward, which could help stabilize food and gas prices.

"Our assumptions are that oil prices aren't going to move much higher so we don't get month-over-month shocks in food and gasoline prices that we've seen over the last year."

BMO Capital Markets economist Douglas Porter said retail sales were firmer than expected in May, but noted the trend is far from "inspiring."

The rise in gasoline prices over the spring may have "chilled" spending on most other goods, he said.

"Sales volumes were just flat in May, a bit better than we had expected thanks to the less-deep drop in autos, but are still on track for a decline in all of Q2 due to a weak handoff from the prior quarter," he said in a note.

Statistics Canada said the sales of sporting goods, hobby, book and music store sales rose 1.3 per cent, the first significant increase since November 2010.

The agency said sales rose in seven of the 11 subsectors it surveys, with building material and gardening stores recording a 3.3 per cent increase as better weather had more people tending lawns and gardens

Department store sales increase 0.4 per cent in May, a third consecutive monthly increase, the federal agency said.

Car and auto parts dealers saw sales decline by one per cent after two months of gains.

Food and beverage sales fell for a third month in a row, with supermarkets and other grocery stores accounting for most of the 0.9 per cent decline.

A recent survey by the Royal Bank found that Canadians were putting off summer vacations, new car purchases and were becoming more strict with budgets so they could better handle higher gas and food prices and reduce their debts.