Canadian Retail Sales Decline in June

Retail sales in Canada experienced a decline in June, dropping 0.3 percent to $65.7 billion, primarily driven by a significant decrease in sales at new car dealerships. Statistics Canada reported that sales at motor vehicle and parts dealers fell by 2.1 percent, with new car sales down 2.9 percent and used car sales declining by 0.6 percent. While a software glitch at car dealerships contributed to the downturn, economists attributed the overall decline to the financial pressures consumers face due to elevated interest rates. The Bank of Montreal's economist, Shelly Kaushik, noted that consumer spending remained subdued in the second quarter as Canadians struggled with high interest rates. The Bank of Canada recently cut its key interest rate to 4.75 percent in June, marking its first reduction since March 2020, and further lowered it to 4.5 percent in July. These higher rates typically dampen consumer spending, particularly as many Canadians face mortgage renewals and a weakening labor market. Sales were down in four of nine retail subsectors, with discretionary categories such as sporting goods and gas station sales also experiencing declines. CIBC Economics' Katherine Judge highlighted the persistent weakness in retail sales, particularly in housing-related sectors, where building material and furniture sales have sharply decreased compared to last year. Despite the overall decline, core retail sales, which exclude gasoline and motor vehicle sales, rose by 0.4 percent in June. Food and beverage retailers saw a 1.2 percent increase, driven by gains in supermarkets. Looking ahead, Statistics Canada’s preliminary estimate for July suggests a potential increase of 0.6 percent in retail sales, although this figure is subject to revision.