(Bloomberg) -- Canadian retail sales likely rose last month after dropping in June, but the gains won’t erase a dismal first half of the year, supporting the Bank of Canada’s case to continue cutting rates.
Receipts for retailers rose 0.6 per cent in July, only the second monthly sales gain this year, according to an advance estimate from Statistics Canada released Friday. That followed a 0.3 per cent decline the previous month, matching expectations in a Bloomberg survey of economists.
Overall, sales were down 0.5 per cent in the second quarter, following a 0.4 per cent drop in the first quarter. The data mark the weakest two consecutive quarters since 2009 outside the pandemic, keeping the central bank on track to lower borrowing costs for a third straight meeting on Sept. 4.
Sales were down in four of nine subsectors in June and were led by decreases at auto dealerships. The decline was driven by lower sales of new cars, a volatile category this year. Cars were previously a source of strong sales growth as the country recovered from the pandemic, bolstered by pent-up demand and a booming population.
The 0.6 per cent jump in sales in July would be the highest since December. The apparent retail recovery happened as the Bank of Canada cut its policy rate in June and July, bringing it to 4.5 per cent. Economist and markets widely expect the central bank to continue easing next month as inflation continues to wane and it shifts focus to a deteriorating jobs market.
Consumers continued to tighten their spending in June, building on a significant contraction in May, Maria Solovieva, an economist at Toronto-Dominion Bank, said in an email. Looking ahead, the first month of the third quarter isn’t showing much improvement, she said.
“Our internal data suggests July spending remained weak, aligning with soft employment and Statistics Canada’s flash estimate.”
However, she added that a rebound in auto sales is likely as transactions delayed by a tech outage in June are processed.
Excluding autos, receipts rose 0.3 per cent in June, beating expectations for a 0.2 per cent drop.
In volume terms, sales rose 0.1 per cent. Core retail sales, which exclude gas stations and car dealers, were up 0.4 per cent.
Regionally, sales fell in seven of 10 provinces. The country’s biggest province, Ontario, drove the overall decline. But Toronto sales were up 0.3 per cent.
The statistics agency didn’t provide details on the July estimate, which was based on responses from 53.4 per cent of companies surveyed. The average final response rate for the survey over the previous 12 months was 89.6 per cent.
With assistance from Randy Thanthong-Knight and Jay Zhao-Murray
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