Canadian retail sales

grew at the fastest pace this year in June, according to an official estimate, bouncing back from a slowdown in May.

An advance estimate suggests receipts for retailers rose 1.6 per cent last month, following May’s 1.1 per cent decline and April’s 0.4 per cent increase,

according to Statistics Canada data released Thursday.

Those figures point to a 0.4 per cent increase over those three months, the weakest quarterly pace of retail spending in a year.

June’s strong growth, however, suggests a better economic outlook in the second half of the year, especially given signs of a surprisingly robust jobs market that month. Canada bonds sold off across the curve after the release. The 10-year benchmark yield was up about two basis points to 3.573 per cent as of 9:59 a.m. Ottawa time.

The statistics agency didn’t provide details for the June estimate, which is based on responses from 52.7 per cent of companies surveyed. May’s drop — slightly deeper the median projection in a Bloomberg survey of economists — was driven by sales decreases at motor vehicle and parts dealers.

Excluding autos, sales slid 0.2 per cent in May, a third straight month contraction. In volume terms, total retail sales plunged 1.4 per cent, the largest drop in a year.

“A decent flash estimate for June suggests the downward momentum in spending could be stabilizing,” Shelly Kaushik, economist at

Bank of Montreal,

said in a note to investors. “As Canada and the U.S. work towards a trade deal, it’s clear that more trade certainty can help support Canadian consumers and broader economic activity.”

Thursday’s report is unlikely to sway the central bank from holding rates steady for a third straight meeting next week, as the retail data underscore household consumption slowing modestly in the face of tariffs and heightened economic uncertainty since the start of this year.

“The data today likely seals the deal for

the Bank of Canada

to hold its policy rate in July,” Desjardins’ Tiago Figueiredo said in a report to investors. “That said, we still expect that the central bank resumes its easing cycle later in the year.”

The tariff impact on the economy so far has been mostly limited to sectors reliant on U.S. trade, with firms surveyed by the Bank of Canada seeing the country escaping the worst-case outcomes.

Statistics Canada reported that 32 per cent of retailers said they were affected by trade tensions in May, compared with 36 per cent in April. The most common impacts cited by retail businesses in May were price increases, change in demand for products and increased expenses for raw materials, shipping or labor.

‘Consumer caution’

In May, sales declined in nine of 10 provinces, which the exception being Nova Scotia, where higher receipts for building material and garden equipment led the increase. Ontario saw the largest provincial decrease of 2.1 per cent on lower car sales. In Toronto, the country’s most populous city, sales were down 2.8 per cent.

Sales at gas stations also dropped for a third consecutive month, decreasing 1.4 per cent. Core retail sales, which exclude gas stations and car dealers, were relative unchanged, with food and beverage retailers seeing a 1.2 per cent drop, also a third consecutive monthly decrease.

After gains in the previous two months, car and parts dealers recorded the largest decrease in retail sales in May. The decline was led by lower sales for new cars, which fell for the first time since February.

Car sales, which had been strong for much of the past year, appeared to lose momentum in the second quarter, with higher prices deterring some purchases.

Earlier this week the Bank of Canada’s consumer survey showed Canadians were anticipating “significant increases” in car prices over the next 12 months. Inflation expectations for vehicles are as high now as they were after

the COVID-19 pandemic

disrupted supply chains.

The central bank also sees consumers become increasingly cautious about spending plans and behaviors, with spending intentions weakened in the second quarter and fears of job losses elevated.

  • May retail sales drop could point to BoC restarting rate cuts
  • Retail sales put a BoC rate cut back on the table

“Despite some recovery in traditional confidence measures, Canadians appear to be treading carefully as they assess the impact of tariffs,” Maria Solovieva, economist at

Toronto-Dominion Bank

wrote in a note. “Consumer caution remains the dominant theme.”

With assistance from Curtis Heinzl and Mario Baker Ramirez.

Bloomberg.com