The fact that May retail sales jumped much more than expected (according to analysts polled by Bloomberg) clearly indicates that Canadian consumers are translating their buying plans into action.

This observation is reflected in the chart which tracks year-over-year growth in retail sales and in the responses to the Conference Board of Canada’s consumer survey question: “Is now a good time to make a major purchase?”
According to the Conference Board, positive responses have been trending higher since August of last year.

The fact that purchasing plans have strengthened despite a steady increase in the unemployment rate suggests that the stimulative effect of lower interest rates is helping to offset the adverse effects of significant job losses, particularly in manufacturing.

Heading into the second half of the year, the overall index of consumer confidence continued to trend higher, primarily due to stronger buying plans.

Across the country, gains in the index were concentrated in Ontario and Québec, more than offsetting weakness in Western Canada, British Columbia and Atlantic Canada.

While purchasing plans strengthened in July, responses to questions about future employment and the current financial situation declined in the month, suggesting that the overall economic health of consumers is still fragile.

Looking forward, although retail sales will probably retreat in June following their above average surge in May, the sustained upward trend in plans to make major purchases, combined with a gradual turnaround in job growth against a background of low interest rates, should cause consumer spending to trend higher through the second half of 2009 and
into 2010.

It is unlikely, however, that this pick-up in spending will lead to a significant increase in new retail development in the near term, given that retail vacancy rates have increased over the past year.

What’s more, according to the Bank of Canada, lending conditions continued to tighten through the second quarter, albeit on a less generalized basis than in the first quarter.