Canadian Wholesale Revenues: Modest Rebound in March

Source: Statistics Canada
 
Canadian wholesalers reported a modest rebound in sales in March, helped by higher deliveries of building supplies and machinery and electronic equipment. However, the increase was not enough to prevent a second consecutive quarterly decline in sales.


Sales increased by an estimated 0.6% to $42.7 billion, recouping some of the 2.1% decline reported in February.

On a quarterly basis, wholesale sales fell 0.8% in the first quarter, following a 0.3% decline in the fourth quarter of 2007. First quarter sales were affected by a large drop in the motor vehicles trade group, which registered its fourth consecutive quarterly decline, as well as continued weakness in the beleaguered lumber sector. In marked contrast, the other products" trade group registered its highest quarterly growth in five years, thanks to the continuing surge in worldwide demand for agricultural supplies.

After hitting a peak in June 2007, the level of wholesale sales has softened somewhat over recent months. Much of this has to do with the weak demand for motor vehicles and lumber, both of which have been hit by the slowdown in the US economy. Prior to this, wholesale sales had undergone a period of sustained growth that began in mid-2003.

Taking price fluctuations into account, the volume of sales edged down 0.1% in March.
 
Higher demand for building materials and machinery and equipment
Following very weak sales in February, likely exacerbated by that month's adverse weather conditions in Central Canada, building supplies rebounded by 3.4% in March, accounting for around half of the overall rise in wholesale sales. Notwithstanding the increase in March, sales in this trade group have slowed somewhat over the preceding six months.

Most of the remaining growth in March came from a 2.6% increase in the machinery and equipment trade group, which continued its strong start to the year with a third consecutive monthly rise. Sales of agricultural machinery have been particularly strong of late.

Partially offsetting these gains was a second straight monthly decline for consumer-related trade groups such as household and personal products, pharmaceuticals and apparel.

Saskatchewan powers ahead while Ontario recoups some of the big February decline
Only four provinces registered higher sales in March, with Saskatchewan and Ontario accounting for the bulk of the increase.

Saskatchewan posted a second double-digit increase in three months, as sales powered ahead by 11.6% in March to a new record high. As was the case in January, when sales rose by 12.2%, surging demand for agricultural supplies, notably fertilizers, was behind much of the latest gain. As a result, sales growth in the first quarter was the strongest on record and followed a substantial increase in the fourth quarter of 2007.

After a month in which they saw their sales fall by the largest amount (-5.0%) since the August 2003 blackout, wholesalers in Ontario recovered some ground in March as sales moved ahead 1.6%. Higher demand for building supplies as well as food products, metal products and machinery and equipment was behind most of the gain.

Despite the increase in March, wholesale sales in Ontario fell by 3.0% in the first quarter, which was the largest quarterly decline since the second quarter of 2003. Weak motor vehicle sales, a combination of softening prices, weak demand from the United States and changing consumer preferences for smaller vehicles, were behind much of the drop in the first quarter.

Inventories rise for the first time in fourth months but at a moderate pace
Wholesalers' inventories increased for the first time in four months in March, albeit at a modest 0.2% pace.

Of

the  15 wholesale trade groups, 10 reported higher inventory levels, led by the food products, computer and other electronic equipment and office and professional equipment trade groups. These increases were mainly offset by drops in motor vehicle and building supply inventories.

With the growth in total wholesale sales outpacing the growth in inventories in March, the inventory-to-sales ratio edged down from 1.28 in February to 1.27 in March. The ratio has remained within a fairly narrow range since hitting its last peak in October 2006.

The inventory-to-sales ratio is an indicator of how many months it would require to deplete current inventories at the existing rate of sales.