OTTAWA (Reuters) - Canadian retail sales fell unexpectedly in July from June after two months of robust gains, pointing to a sluggish recovery in consumer spending as the economy pulls out of recession.
Sales dropped 0.6 percent in the month, pushed lower by a drop in gasoline prices and a fall in sales in supermarkets and home electronics stores, Statistics Canada said on Tuesday.
The result was a disappointment for markets, which had expected a 0.6 percent jump, and followed increases of 1.0 percent and 1.1 percent in June and May, respectively.
In volume terms, overall sales slipped 0.1 percent. Compared with July 2008, they were down 4.9 percent.
"No forecaster expected a headline drop in sales, let alone such a large and broadly based hit," said Derek Holt and Karen Cordes of Scotia Capital in an e-mail note.
The Canadian dollar weakened following the retail sales report. It fell as low as C$1.0718, or 93.30 U.S. cents, from C$1.0677, or 93.66 U.S. cents, just before the report. This was still up from Monday's close of C$1.0775. or 92.81 U.S. cents.
The economy grew in June after 10 months of contraction and economists expect the gradual expansion to continue in July, despite the bad news for retailers.
"It is clear that the Canadian economy continues to improve, but consumers appear slow to go out on a limb and purchase to the same degree that they once did," said Charmaine Buskas, senior economics strategist at TD Securities.
"The turnaround in consumer activity through the second half of the year will remain a theme, but much still depends on the labor market," she said.
Prime Minister Stephen Harper said on Monday that Canada's recession is over only in a technical sense, and would only truly be over when the job market improves.
New and used vehicle sales posted small gains. Excluding autos, sales fell 0.8 percent.
"A large gain in vehicle sales during the month did not carry through into the vehicles component of the report because the sales were of lower priced autos, but we're still surprised by the weakness in the autos component ex gas in this report," said Holt and Cordes.
Statscan said volatile gasoline prices explained most of the monthly decline in July as gasoline station sales tumbled 3.4 percent. Gasoline prices had been the key driver of the sales data in three of the past four months.
Consumers spent 1.5 percent less at food and beverage stores, possibly explained by colder than usual weather during the summer barbecue season in many parts of the country. Home electronics and appliances sales slid 2.5 percent in July from June, when new phone products were introduced on the market.
Reporting by Louise Egan; editing by Peter Galloway