Canadian Retail Sales Decreased 0.4% In June

: Retail sales decreased 0.4% in June, following a 0.2% increase in May (revised down from +0.3%). Sales decreased in 7 of 11 retail industries. Motor vehicles and parts sales were down 0.4%, a third consecutive monthly drop. Excluding motor vehicles and parts, retail sales declined 0.4% with the largest pullback registered by building material and garden equipment (-2.1%), general merchandise stores (-1.5%) and gasoline stations (-1.3%).

This month’s best performers were miscellaneous store retailers (+1.4%) and electronics & appliance stores (+1.1%). On a regional basis, sales were down in 6 provinces. The strongest decrease was observed in Nova Scotia (-3.4%) while Quebec (+0.7%) was the best performer. In June, volume retail sales were down 0.1%, after increasing 0.6% in May (top chart).

OPINION: The June retail report was much softer than expected indicating that the weak consumption environment continues in Canada. Indeed, retail sales are essentially at the same level they were last October, 8 months later. Big ticket items are particularly hit over that period. Housing related spending (furniture, electronics, appliances and building material) is declining 5.3% in Q2 (annualized), following a 6.8% pullback in Q1. Auto dealerships which have performed well in Q1 (+6.5%), lost all those gains in Q2 (-8.5%). As a result, discretionary spending is experiencing its worst performance in 2 years.

High gasoline prices and a drastic slowing in consumer credit are hurting overall spending in the quarter. Based on labour market data, wage gains are nevertheless very strong in Q2 indicating a possible increase in the savings rate which was at a very low level. With June's drop in volumes, real retail sales fell 2% annualized in the second quarter of 2012 suggesting limited contribution to GDP by consumers in Q2, after an unimpressive Q1. We continue to expect GDP growth to come out at 1.5%, below the Bank of Canada's 1.8% estimate for the quarter.