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OTTAWA (Reuters) - Canadian retail sales fell 0.6 percent in June after a 1.8 percent gain in May, foreshadowing weaker gross domestic product for the month than initially thought, Statistics Canada data showed on Thursday.
The effect of floods in Alberta and a construction labor strike in Quebec for two weeks in June had led analysts to expect a decline in retail sales and economic growth in the month. That was expected to be largely matched by a rebound in July, and therefore the Bank of Canada had said it would essentially ignore June's expected economic weakness.
"I guess you don't need to put on new fertilizer when you're under 2 feet of water," said David Tulk, chief Canada macro strategist at TD Securities.
But the strike and flood were only part of the story. While Quebec and Alberta did indeed see retail sales falling 1.3 percent and 0.6 percent, respectively, Ontario fell an even greater 1.4 percent despite higher car sales there.
The volume of sales, which is the relevant indicator for calculating real moves in gross domestic product, fell 1.2 percent, the biggest drop since December. All figures are seasonally adjusted.
The median forecast for overall retail trade in a Reuters survey was for a 0.4 percent decline in June.
The Canadian dollar slipped to its weakest level in six weeks against its U.S. counterpart, pressured in part by the retail sales data. <CAD/>
Other indicators for the month have also disappointed, with wholesale trade 2.8 percent lower and manufacturing sales down 0.5 percent in dollar terms and 1.3 percent in volume.
"The Canadian economy looks to have ended Q2 on a very sour note, with GDP contracting about 0.5 percent," BMO Capital Markets senior economist Benjamin Reitzes said.
Despite the negative retail figure, June's sales were 1.2 percent higher than April's and up 3.1 percent from a year earlier.
Economists were still expecting second-quarter GDP to come in above the 1.0 percent annualized forecast that the Bank of Canada made in July.
With additional reporting by Solarina Ho in Toronto; Editing by Maureen Bavdek