Canadian household spending appears to be struggling to jump back from a lull hit in Q1

Total Canadian retail sales edged down 0.1% m/m in April, following two months of modest gains.  Stripping away prices, real retail sales were down a more 0.2% in the month and are still 0.8% below the peak reached in November of last year. Most of the weakness in nominal retail spending was concentrated in grocery stores (-0.9%), gasoline stations (-0.5%), beer wine and liquor stores (-3.4%) and electronics and appliances (-8.8%). However, these categories masked strength elsewhere.

Household spending appears to be struggling to jump back from a lull hit in Q1, as consumers continue to grip their wallets tightly amid economic uncertainty. Having said that, the low interest rate environment and rebound in housing activity has benefited some retailers, such as auto dealers and furniture stores. Consumers, however, look to have given up spending on smaller items to make room for housing related and auto spending.

Despite the weak start to the quarter, retail sales are likely to rebound in the coming months and real consumer spending is still expected to grow by around 2.5% annualized in Q2, up from 1.0% in the first quarter of the year, estimates TD Economics

For one, household income growth and employment has remained stable so far in 2015, likely giving households a bit more financial wiggle room going forward. Second, low interest rate-induced gains in both existing home sales and new home construction are likely to continue to boost housing related spending.