Canada: Wholesale Trade Robust in June

• Wholesale sales in June rose by a big 2.0% M/M, and are still up 1.0% when adjusted for inflation.
• This marks the fifth increase in six months for the sector, and the sector is up a moderate 5.0% Y/Y.
• June GDP is being saved by a mottled cast of characters including exporters, manufacturers, and wholesalers.

Canadian wholesale trade managed to grind out yet another robust gain in June, with a 2.0% increase coming on the heels of a 1.5% rise in May and a 1.6% increase in April. In fact, the past four consecutive months have recorded robust growth, as have five of the last six. As a result, the 6m annualized growth rate sits at a rocket-fuelled 12.5%, while the annual pace of growth is a somewhat more moderate 5.0% Y/Y.

There was considerable breadth to the monthly gain, as six of seven subcomponents rose, and only “other products” hit the skids with a 4.8% decline. The key cog in this month’s engine was automotive products, which banged out a 10.6% rise. It is important to recognize, however, that this increase merely unwinds some of the earlier auto sector weakness, and brings the level of activity in the subcomponent back to highest since November of last year, though still well off the peak in March of 2007. Other subcomponents rose on a monthly basis, too, but not nearly so strikingly.

Although inventories continue to grow in the sector, the pace of sales growth has been so dominant that the inventory-to-sales ratio fell for a third month to the lowest level in over a year.

The wholesale sector is often somewhat overlooked in Canada, but it represents a reasonably important 5% of the Canadian economy, and it tends to punch above its weight in terms of its relevance for GDP forecasting. Although recent economic indicators have tended to be somewhat glum for Canada, there is an underpinning of support that has recently arisen from the unlikely trio of exporters, manufacturers, and wholesalers. Our current tracking suggests a monthly gain of about 0.2% for June GDP, and thus a very rough 0.8% annualized Q2 GDP increase – in line with Bank of Canada expectations. In turn, this gives us cause to think that the Bank of Canada may remain comfortable at a 3.00% overnight rate into the fall.

TD Bank Financial Group

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