According to data issued by Statistics Canada on Friday, Canada’s retail industry saw a largely anticipated dip in July, with shoppers pulling back in most categories.
Retail sales fell 0.8% to C$69.6 billion ($50.36 billion), reversing most of June’s estimated 1.6% increase.
The downturn was widespread, with sales declining in eight out of nine subsectors.
Clothing and accessory stores experienced the steepest loss, down 2.9%, while food and grocery merchants down a 2.5%.
In total, decreasing subsectors accounted for 72.2% of all retail activity.
In volume terms, which exclude the impact of price increases, sales declined 0.8%.
The decline showed the strain on household spending due to rising living costs and deteriorating labour market conditions.
Motor vehicles represented a rare bright spot
Amidst the widespread slump, one category stood out.
Sales at motor vehicle and parts dealers, representing over 27% of total retail sales, rose 0.2%.
In July, it was the only segment to record growth.
Retail sales, excluding motor vehicles and parts, decreased 1.2% — a much larger decline than anticipated by analysts.
Economists polled by Reuters had expected a drop of 0.7%.
The sharper-than-expected drop highlights how sensitive household spending remains to higher costs, especially in discretionary categories like clothing, as well as cuts to essential purchases such as groceries.
Analysts see resilience ahead
While July’s results indicated a decline, forward-looking indicators suggested some hope.
According to an advanced estimate from Statistics Canada, retail sales are expected to rise by 1% in August.
That outlook may help alleviate fears about the economy’s trajectory.
Retail sales account for approximately 40% of consumer spending, making them a significant component of GDP.
After Canada’s economy declined in the second quarter, a rebound in consumer demand in the third quarter would lessen the likelihood of consecutive contractions, which is the technical definition of a recession.
Shelly Kaushik, a senior economist at BMO Capital Markets, noted that Canadian consumers have demonstrated resilience in the face of economic challenges.
“While the July retail sales figures were soft, a decent August suggests Canadian consumers didn’t stay down for long,” the economist added.
According to Kaushik, “despite ongoing trade uncertainty and further weakening in the labour market, the economy looks to be on track for a modest recovery to start the third quarter.”
Economic implications
The July decrease was broadly in line with expectations, with analysts polled by Reuters expecting a 0.8% decrease.
But the drop in sales other than motor vehicles and parts was sharper and highlighted the fragility of household spending.
Policymakers and financial markets will look at this as an early indicator of how growth may look in the third quarter.
A confirmation of the advance August reading would represent a bounce that is powerful enough to signal the economy is sidestepping a more significant soft patch.
The fact that motor vehicle sales are the one bright spot highlights the patchiness of consumer demand between sectors.
What’s ahead?
Looking ahead, the trajectory of retail sales will be pivotal in shaping expectations for Canada’s economic performance. A rebound in August could ease fears of a prolonged slowdown and support the case for modest growth in the third quarter.
Still, the combination of trade uncertainty, labour market softness, and elevated consumer costs remains a drag on spending.
With retail sales serving as a leading indicator for GDP, further monthly volatility is likely to influence forecasts for whether Canada can maintain momentum or risk slipping into a recession.
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