OTTAWA (Reuters) - Canadian retail sales dropped 0.5 percent in April from the previous month, defying expectations of an increase, in another sign that the economy grew at a disappointing rate in the second quarter.
The overall decline, reported by Statistics Canada on Thursday, was the greatest since the 0.5 percent retreat in July 2011. Analysts had forecast a 0.3 percent month-on-month increase.
Lower sales were reported in eight of 11 subsectors, representing 78 percent of retail sales.
"It looks like GDP for April is coming in at a modest 0.1 percent, or flattish. In other words, the economy struggled to post any growth in April," said Jennifer Lee of BMO Capital Markets.
In April, the Bank of Canada forecast annualized growth in both the first and second quarters of 2.5 percent. The actual figure for the first quarter was 1.9 percent.
Data released last week showed April manufacturing fell by 0.8 percent, compared with expectations for a 0.3 percent rise.
On June 5, the central bank signaled it might have to raise interest rates but softened its recent hawkish language as fears about the impact of the European debt crisis intensified.
The Bank of Canada has kept its benchmark rate at a near-record low 1 percent since September 2010.
"Overall, today's data point to a softening trend in the consumer (is) one more reason for the Bank of Canada to stay on the sidelines," said Emanuella Enenajor of CIBC World Market Economics.
Bank of Canada Governor Mark Carney is due to give a speech and talk to reporters later on Thursday.
Canada's dollar weakened against its U.S. counterpart after the retail figures were released, dropping to C$1.0218 versus the U.S. dollar, or 97.87 U.S. cents, from about C$1.0195, or 98.09 U.S. cents, just before the data's release.
It later recovered partially, and by 9:30 a.m. it was trading at 1.0201, or 98.03 U.S. cents.
Compared with April 2011, retail sales were 3.4 percent higher. In volume terms, April sales decreased by 0.8 percent from March, the third decline in four months.
"The consumer is so far tracking even weaker in the second quarter than it did in the first quarter, and that supports our longstanding bias that the Bank of Canada has no rate tightening flexibility any time soon," Scotia Capital economists Derek Holt and Dov Zigler said in a research note.
Statscan said sales at motor vehicles and parts dealers fell by 1.2 percent, while lower receipts in some stores reflected the fact that spring sales this year started in March.
Enenajor said "other categories were notably weak as well, including furniture sales, food sales, electronics, vehicle sales and merchandise store sales, alluding to consumer weakness beyond a simple 'weather' story."
A Reuters poll of global forecasters on May 30 showed the median prediction for the timing of the Bank of Canada's next 25-basis-point rate increase had moved ahead to the first quarter of 2013 from the second quarter.
Reporting by David Ljunggren; Editing by Frank McGurty