MRO Magazine

Wholesale trade sales fall for second quarter

Ottawa, ON -- Wholesale sales fell for a second time in three months (-0.6%) in June 2006, pulled down by lower sal...


Industry

September 18, 2006
By MRO Magazine
MRO Magazine

Ottawa, ON — Wholesale sales fell for a second time in three months (-0.6%) in June 2006, pulled down by lower sales in the automotive sector, reports Statistics Canada. Wholesalers sold $41.5 billion worth of goods and services. Excluding the automotive sector, sales declined 0.3%. Weak wholesale sales in these past months sharply curtailed the growth for the quarter ending in June compared to the previous two quarters.

Since the fall of 2003, wholesalers have experienced a period of steady growth. Previously, decreasing sales of motor vehicles were the main cause of a decline that began in April 2003.

Sales contracted in three of the seven sectors in June, accounting for approximately 49% of total sales. Decreases were registered in the automotive sector (-2.1%), the “other products” category (-2.3%) and the food, beverages and tobacco products sector (-0.8%). The sectors showing the largest gains were building materials (+0.6%) and farm products (+4.7%).

In constant dollars, wholesale sales declined 0.6% in June.

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QUARTERLY GROWTH SLOWS

Sales for the quarter ending in June showed a lower growth rate than in the previous two quarters. In the second quarter, sales grew only 0.5% compared to increases of 2.9% and 2.5% in the previous two quarters. Substantial declines in sales of lumber (-8.1%), motor vehicles (-2.2%) and office and professional equipment (-3.0%) explain in part the low growth in the second quarter. These three groups all recorded strong growth in the first quarter.

Wholesalers in the automotive sector were unable to hold onto all the gains made in May (+2.7%), with sales falling 2.1% to $8.2 billion in June, the fourth decline in five months.

Wholesale sales of motor vehicles fell 1.5% in June, a fourth decline in five months. These decreases are partly due to falling demand in North America for different models of motor vehicles, stemming from consumers’ reaction to rising gas prices and climbing interest rates. The lack of major promotions or incentive programs in the past six months may also have contributed to the weakness in sales.

Wholesale sales of motor vehicle parts also declined in June (-5.1%). This drop more than offset the 4.2% increase in May. Wholesalers in this industry, who sell primarily to retailers and dealers, have registered generally stable sales since March 2004.

FIRST DECLINE IN FOUR MONTHS FOR THE “OTHER PRODUCTS” SECTOR

After increases in the previous three months, sales of “other products” declined 2.3% in June. This decrease was attributable in part to weak sales of chemical products and some products relating to the agriculture industry. In previous months, the sector had strongly benefited from sales of recycled metals.

Average monthly growth, which had been very strong until May 2005, began to slow after that, partly owing to a sharp decrease in exports of some products, such as fertilizers and seed materials. Conversely, wholesalers of recycled metals and general merchandise experienced very strong growth during this period.

WHOLESALE SALES IN THE BUILDING MATERIALS SECTOR CONTINUE TO ADVANCE

After rising 1.2% in May, sales of building materials advanced 0.6% in June. Two groups in this sector are responsible for the increase in June.

Sales of metal products (+4.3%) posted a fourth consecutive increase in June. Since September 2005, this group has followed an upward trend after a period of declines that began in December 2004. This strong showing is partly due to a sizable increase in metal prices during this period.

Wholesale sales in the building materials group edged up 0.2% in June. This group has experienced a period of practically uninterrupted growth since the fall of 2003, as a result of the strong performance of the renovation and construction market in Canada.

Sales among lumber and millwork (-2.6%) wholesalers fell for the fourth time in five months. This downward movement is largely related to declining activity in the residential construction sector in the United States. According to the US Commerce Department, new home sales in the United States were down 3% in June compared to May and down 11% compared to June 2005. Furthermore, the number of unsold homes was up sharply. Canadian wholesalers are responsible for nearly 30% of lumber exports.

FARM PRODUCTS SECTOR POSTS FIRST INCREASE IN EIGHT MONTHS

After seven consecutive decreases, wholesale sales of farm products made up some lost ground in June (+4.7%) on the strength of increased exports of live animals (+15.0%). Wholesalers in this group strongly benefited from the United States reopening the border in July 2005 to cattle under 30 months of age. Live animal exports then rose quickly, peaking in October 2005. In the months that followed, cattle exports declined.

PRINCE EDWARD ISLAND AND SASKATCHEWAN POST STEEPEST DECREASES

Prince Edward Island wholesalers saw their sales tumble 14.7% in June, wiping out the gains of the previous two months. A large decrease in sales of food products, especially fish-related products, was largely responsible for the decrease in that province. Prior to the decline in June, wholesale sales had been recovering since February 2006. This followed a strong period of contraction that began in the second quarter of 2005.

Wholesale sales in Saskatchewan also fell in June (-5.5%), as a result of lower sales of machinery and equipment and of “other products” (including seed and fertilizer, as well as agricultural chemicals).

Apart from the territories, only Alberta (+2.4%) and Quebec (+1.5%) posted gains in June. In Quebec, the increase was generalized among sectors. Alberta showed strongly increased sales of machinery and equipment as well as building materials. Together, these two groups account for approximately half of the total sales of that province. Since September 2003, Alberta’s total wholesale sales have generally been rising.

INVENTORIES INCREASE

After remaining relatively unchanged in May (-0.1%), inventories rose 0.8% in June. The trend in total inventories has generally been upward since November 2003. May’s decrease is essentially attributable to the 3.2% decline in machinery and equipment inventories.

The inventory-to-sales ratio edged up from 1.22 in May to 1.23 in June. This ratio has generally been stable since February 2005. Previously, it went through a period of declines that began in October 2003.