People shop at the Eaton Centre in Toronto, Ontario, Canada November 22, 2022. REUTERS/Carlos Osorio/ File Photo

By Promit Mukherjee

OTTAWA (Reuters) - Canada recorded a widely anticipated drop in retail sales in July as purchases across a broad range of products dropped, data from the national statistics agency showed on Friday, with consumers spending less for clothing and groceries.

Retail sales for July were down 0.8% to C$69.6 billion ($50.36 billion), Statistics Canada said, giving up most of the previous month's gains.

June retail sales increased by a revised 1.6%, StatsCan said, while an advanced indicator suggests that retail sales growth is likely to rebound to 1% in August.

Retail sales, which include domestic sales of cars, furniture, food, gasoline and many other items, are considered an early indicator of gross domestic product growth and contribute around 40% to total consumer spending.

Analysts and economists track the retail sales number closely to gauge the health of the economy.

A healthy August retail sales number could indicate that third-quarter GDP might not be weak and could possibly avoid contraction, after the economy shrank in the second quarter.

Two back-to-back quarters of contractions mean an economy has entered a recession.

"While the July retail sales figures were soft, a decent August suggests Canadian consumers didn't stay down for long," said Shelly Kaushik, senior economist at BMO Capital Markets.

"Despite ongoing trade uncertainty and further weakening in the labor market, the economy looks to be on track for a modest recovery to start the third quarter," she said.

In July, retail sales were down in eight of nine subsectors, representing 72.2% of retail sales, said StatsCan, adding that in volume terms retail sales decreased by 0.8%.

Sales at motor vehicles and parts dealers - the biggest contributor to retail sales accounting for over 27% of the overall number - rose by 0.2%. It was the only sector that posted growth in July.

Retail sales excluding motor vehicle and parts - a closely-tracked metric - were down 1.2%, missing analysts' estimates by a large margin.

Analysts polled by Reuters had forecast retail sales to be down 0.8%, and sales excluding motor vehicles and parts were projected to drop by 0.7%.

The biggest decline in sales was observed in the clothing and accessories category where purchases dropped by 2.9%. This was followed by a drop in purchases at supermarkets and grocery retailers. This category fell by 2.5%, StatsCan said.

($1 = 1.3821 Canadian dollars)

(Reporting by Promit Mukherjee; Editing by Joe Bavier and Frances Kerry)