July 23, 2013 / 2:53 PM / in 4 years

UPDATE 2-Canada May retail sales leap 1.9 pct, should boost Q2 growth

* Retail sales record biggest jump since March 2010

* Autos help drive sales to record high

* Canadian dollar strengthens on the news

By David Ljunggren

OTTAWA, July 23 (Reuters) - Canadian retail sales in May jumped by 1.9 percent from April to hit a record high, a clear sign that second-quarter growth could be significantly stronger than expected.

The advance - far greater than the 0.4 percent growth predicted by analysts - was the largest rise since the 2.8 percent month-on-month leap recorded in March 2010, Statistics Canada said on Tuesday.

Analysts said the strong numbers, driven in part by higher auto sales, meant annualized growth in the second quarter was set to eclipse the Bank of Canada’s July 17 prediction of just 1 percent. First-quarter growth was 2.5 percent.

“As the U.S. struggles to hit 1 percent annualized second-quarter GDP growth, we think that this print means Canada could easily double or as much triple that growth rate,” Derek Holt of Scotiabank Economics said in a note to clients.

Higher sales were reported in nine of the 11 subsectors, representing 94 percent of total retail trade. In volume terms, sales were also up 1.9 percent.

Retail sales hit a record C$40.42 billion ($39.24 billion) in May, up from the previous high of C$39.77 billion set in November 2012.

The data helped push the Canadian dollar to its highest against the U.S. dollar in more than a month. It strengthened to C$1.0298 versus the greenback, or 97.11 U.S. cents, up from Monday’s North American session close at C$1.0344, or 96.67 U.S. cents.

The largest sales increase in dollar terms among all subsectors was a 4.3 percent gain at motor vehicle and parts dealers, reflecting higher sales of light trucks, as well as recreational vehicles, motorcycles and boats.

Even excluding motor vehicle and parts dealers, sales increased by a healthy 1.2 percent.

Sales at food and beverage stores rose 1.1 percent, while a later start to the spring planting season helped push up sales at dealers of building materials and garden equipment and supplies by 3.7 percent.

“Everything was selling like hotcakes in May, perhaps even hotcakes,” said Avery Shenfeld of CIBC World Markets. He added that his firm was likely to boost its forecast for second- quarter GDP growth to around 1.8 percent from 1.6 percent.

Beer, wine and liquor store sales increased 2.2 percent, following declines the three previous months. The gain coincided with a later start to the National Hockey League play-offs.

Mazen Issa, a Canada macro strategist at TD Securities, said May’s retail growth should help counter the effects of major flooding in southern Alberta in June and a construction workers’ strike in Quebec the same month.

“Slowing credit growth and elevated levels of household debt will keep the pace of spending over the medium term relatively subdued while net exports contribute solidly to growth,” he said in a note to clients.

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