Retail sales fell 0.3% to $65.7 billion in June in Canada, Statistics Canada announced Friday. The agency attributed the decline to a drop in sales at new car dealerships.
Sales at motor vehicle and parts dealers fell 2.1% overall, while sales at new car dealers fell 2.9% and used car dealers declined 0.6%.
While part of the decline could be explained by a software glitch at auto dealerships that hampered vehicle sales, economists said financial headwinds also contributed to the retail sales drop.
“Spending remained weak in the second quarter as consumers struggled to cope with the burden of high interest rates,” Bank of Montreal economist Shelly Kaushik said in a note to investors.
In June, the Bank of Canada lowered its key interest rate to 4.75%, the organization’s first rate cut since March 2020. In July, the bank lowered the rate again to 4.5%.
A higher rate often dampens consumer spending because it tends to move in tandem with mortgage rates.
“Overall, the decline in sales for the quarter shows that consumers continue to struggle as mortgages mature and the job market weakens,” Katherine Judge of CIBC Economics said in a note to investors.
Sales declined in four of the nine subsectors, with sales in non-core categories such as sporting/leisure/miscellaneous goods falling 0.8% and petrol station sales down slightly by 0.5% due to lower pump prices, M said.me Judge.
She also described sales at home-related retailers as “weak” and noted that sales of building materials and furniture were down sharply from year-ago levels.
“Retail sales have been weak for a long time, and if you look past the volatility caused by the software issue at auto dealerships, that trend remains entrenched,” she said.
However, core retail sales – which exclude gasoline stations and fuel vendors as well as motor vehicle and parts dealers – rose 0.4% in June.
Food and beverage retailers reported a 1.2% increase in sales, while supermarkets and other food retailers, excluding convenience stores, gained 1.8%.
In volume terms, overall retail sales increased by 0.1% in June.
Looking ahead, Statistics Canada said its preliminary estimate of retail sales for July indicated an increase of 0.6% for the month, but warned that figure would be revised.
“Preliminary estimates point to a rebound in July, although it will take time to see a more meaningful recovery in a context of monetary easing,” Mr.me Kaushik.