Canadian retail sales advanced 0.8% in July to $26.6 billion. Although the numbers were a bit weaker than expected, sales still managed to deliver their third consecutive monthly gain.

According to Statistics Canada, July’s increase in retail spending was concentrated in the automotive, furniture and drug sectors. However, strong auto sales were responsible for the bulk of the growth.

Excluding sales by motor and recreational vehicle dealers, the largest component of the automotive sector, retail sales fell 0.4% in July.

Economists had been calling for a 1.2% gain in July, and a 0.5% gain on core sales.

The weak report has them talking about an October cut to interest rates.

BMO Nesbitt Burns notes that sales for June the prior month was revised slightly lower; and that July sales also got a boost from higher gasoline prices, which is hardly a positive.

Nesbitt says that the weakness in the ex-auto sector was broad-based, with big declines in clothing, food, and auto parts. The only areas of strength were furniture and gasoline.

“The 0.8% gain is quite unimpressive, since it was accompanied by a surprising decline in ex-auto sales. The strength in autos helped lift real retail sales up 0.6% in the month, so monthly GDP is still on track for a solid reading in July. But the softness in ex-autos clearly shows how the many shocks that hit the economy over the summer weighed on underlying activity,” Nesbitt says. “If the Canadian dollar keeps moving higher, reports like this will simply fuel talk that the Bank could ease yet again, although the mid-October meeting looks too early for serious consideration with U.S. growth snapping back.”

RBC Financial admits that the report is weak, but says that it is important to look at the volume of spending activity, which strips away the downward impact of price-discounting largely evident in retailing these days. “On this front, retail sales in constant dollars increased a solid 0.6% in July, from an already strong 0.5% gain the month before. This continues to suggest that underlying consumer demand is expanding at a very decent clip and remains a supportive element to overall economic growth,” it says.

“Overall, today’s report is in line with our view that while Q3 will see a rebound from Q2’s GDP drop, it’s still going to be a relatively modest quarter for growth — one lagging substantially behind the US pace,” comments CIBC World Markets. CIBC says that it had forecast a December rate cut, but now predicts the timetable for a Bank easing could be moved up to October, “should the Canadian dollar add to recent strength”.