MRO Magazine

Wholesale trade dipped slightly in July

Ottawa, ON -- Wholesale sales fell for the first time in six months in July 2005 when $39.7 billion worth of goods ...


Industry

September 30, 2005
By MRO Magazine
MRO Magazine

Ottawa, ON — Wholesale sales fell for the first time in six months in July 2005 when $39.7 billion worth of goods and services were sold, down 0.5% compared with June, reports Statistics Canada.

In July, four of the seven sectors, whose sales accounted for 67% of total sales, posted declines. Most of the drop in total sales was attributable to declines in the building materials (-2.8%) and machinery and electronic equipment (-1.8%) sectors. July’s drop was partly offset by increased sales of “other products” (mainly chemicals and other farm supplies).

Even though the overall sales trend has remained positive, it has moderated since July 2004, slowed primarily by weaker motor vehicles sales. Previously, total wholesale sales went through a period of strong growth that began in September 2003.

In constant dollars, wholesale sales slipped 0.1% in July.

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After advancing 0.7% in June, wholesale sales in the building materials sector fell 2.8% in July to $5.4 billion. All groups in this sector contributed to the decrease.

Lumber and millwork sales fell 9.3%, their fifth decline in six months. A sizable share of these five decreases was attributable to the export market, which has shown rather lacklustre results since March 2005. Despite the strength of the construction market in the United States since the start of the year, Canadian exports of lumber and sawmill products have plummeted owing to a steep drop in prices. These exports have fallen 8.2% since February 2005. Wholesalers were responsible for approximately 25% of lumber exports. The large sales decline in July contributed to a steep increase in the inventory-to-sales ratio (up from 1.06 in June to 1.17).

Metal products wholesalers also saw sales slump in July (-1.4%), the ninth decrease in a row. This poor performance is partly due to the weakening of steel prices since the start of the year as a result of sharply increased production in China.

In turn, wholesalers in the building supplies group posted a 1.1% decline in July. Unlike the other two groups in the sector, the building supplies group has experienced a period of almost uninterrupted growth since the fall of 2003, owing to the strong performance of the renovation and construction market in Canada. The building supplies group has been less affected by price fluctuations on international markets, since most of the sales of this group are to the Canadian market.

After two consecutive months of increases, sales in the machinery and electronic equipment sector fell 1.8% in July. This was only the second decline in seven months. Despite the decline, the value of machinery and electronic equipment sales remains high ($8.4 billion).

The strength in this sector is largely attributable to sales of machinery. Substantial investment in the petroleum and gas, mining and transportation industries, concentrated in the western provinces, may have contributed to this strong showing. Since January 2004, the machinery and equipment group has seen a sharp increase in sales, which largely depend on business investment. The rise in the Canadian dollar, combined with low interest rates, has greatly favoured business investment.

Prince Edward Island and Newfoundland and Labrador post the steepest declines
Wholesalers in Prince Edward Island registered a second consecutive drop in sales (-8.6%) in July. Contractions were reported in numerous trade groups, including food products (mainly fish products) and machinery and electronic equipment. Since July 2003, this province’s wholesale sales have been relatively stable.

Wholesale sales fell 3.6% in Newfoundland and Labrador in July, as a result of lower sales in the food products and lumber group. More than one-third of the province’s sales were attributable to these two groups. Despite this drop, wholesale sales in the province have generally been rising since December 2004 following a period of contraction that began in January 2004.

Ontario posted large decreases in sales of machinery and equipment and motor vehicles. Together, these two groups represent approximately one-quarter of the province’s total sales. Ontario wholesalers have generally recorded rising sales since the start of the year.

A moderate 0.2% increase in inventories, combined with the 0.5% decline in sales, caused the inventory-to-sales ratio to rise to 1.20 in July from 1.19 in June. Since October 2004, this ratio has generally remained stable after a downward period that began in October 2003.