Nominal retail sales in Canada unexpectedly fell 0.4% in June, following a downwardly revised 0.2% gain in May, which was previously reported as up 0.3%. Expectations going into the report were for retail sales to eke out a 0.1% gain in the month. Weaker prices played a significant role in the decline with the volume of retail sales in the month showing a more moderate 0.1% drop.
Market expectations for a minimal gain in the month were in part based on the earlier-reported drop in unit auto sales. This weakness was confirmed in this morning’s report with motor vehicle component dropping 0.4%. Despite the June CPI indicating that gasoline prices only dropped 0.1%, sales at gasoline stations dropped a more sizable 1.3%.
However, even excluding these two volatile components, weakness in retail sales was evident with the so-called core retail sales disappointingly weak as well dropping 0.2% in the month though this followed a 0.8% jump in May. This weakness was led by sales declines in furniture (0.5%), clothing (0.3%) and building material (2.1%) stores. The decline in the latter likely reflected some payback from strong gains at the start of the year where mild winter weather may have advanced spring and early summer purchases for yard work.
The 0.1% drop in the volume of retail sales follows yesterday’s disappointing wholesale trade report which showed volumes in that sector dropping 0.5% in the month. However, expected modest gains in most other services categories, including a rebound from the May rail strike which weighed on the transportation component, should allow service-producing industries in aggregate to still eke out a 0.1% gain in the month.
As well, even greater strength in the month is expected to emerge in a sizable gain in utilities output reflecting the above-seasonal temperatures in June, and thus increased demand for air conditioning. June is also expected to see continued modest gains in mining with activity rising 0.5%. Strength in these areas is expected to be sufficient to contribute to monthly growth in June GDP strengthening slightly to 0.2%, following the 0.1% gain in May.
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