Retail sales fell in June as new car sales slump

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Retail sales shrank 0.3 per cent to $65.7 billion in June, but an early estimate points to 0.6 per cent growth in July, Statistics Canada said on Friday.

But economists say a modest rebound in consumer demand is unlikely to prevent the Bank of Canada from making more interest rate cuts this year.  

“It will take time to see a more meaningful recovery amid monetary easing,” BMO Capital Markets economist Shelly Kaushik said in a note. 

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The sales decline in June was driven by reduced demand at motor vehicle and parts dealers, the agency said.

Sales at new car dealers plunged 2.9 per cent and there was a 0.6 per cent slump at used car dealers.

“While that may reflect the negative impact of high interest rates on demand, it’s also possible that Canadian vehicle dealers were affected by the same cyberattack that caused U.S. vehicle sales to drop sharply in June, before rebounding in July,” Stephen Brown, deputy chief North America economist at Capital Economics Ltd., said in a note. 

Sales at gas stations and fuel vendors were down 0.5 per cent as well. 

Core sales, however, climbed 0.4 per cent due to higher sales at supermarkets and other grocery retailers. The biggest decline in core sales was the 0.8 per cent drop from retailers of sporting goods, hobbies, musical instruments, books and miscellaneous items.

Among the provinces, Ontario retailers showed the biggest pullback in sales, falling 0.4 per cent, although sales were up 0.3 per cent in the metropolitan Toronto area.

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Tu Nguyen, an economist at RSM Canada LLP, said consumers are still treading lightly when it comes to discretionary spending. 

“One major headwind is housing costs, including both rents and mortgage interest payments,” she said in an email. “As mortgages come up for renewal at much higher rates, a jump in housing costs means that households have less money left for discretionary purchases.” 

CIBC Capital Markets economist Katherine Judge agrees, noting retail sales were still down 0.5 per cent in the second quarter. 

“Consumers are continuing to struggle as mortgages come up for renewal and the labour market weakens, which will leave the (Bank of Canada) on track to cut interest rates at each of the remaining three meetings this year,” she said in a note. 

Not everyone expects July’s retail sales to warm up. Maria Solovieva, an economist at the Toronto-Dominion Bank, said its internal data differed from the Statistics Canada flash estimate and anticipates July retail sales will still be weak, although auto sales might bounce back as delays triggered by June’s tech outage are resolved. 

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“Adding to the uncertainty is the situation involving Canadian National Railway (CN) and Canadian Pacific Kansas City (CPKC),” she said in a note. 

While the union representing workers at CN said workers would return to work on Friday, the stoppage at CPKC remains ongoing, pending an order from the Canada Industrial Relations Board. 

“If the strike extends for weeks rather than days, it could have significant economic and logistical consequences for the goods sector,” Solovieva said. “Auto and grocery retailers, in particular, are likely to experience inventory disruptions.”

• Email: slouis@postmedia.com

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