OTTAWA: Canada’s wholesale trade declined in May, after two straight months of gains, led by a drop in the value of motor vehicle and parts sales, Statistics Canada said here on the other day.
The results added to a string of negative data in recent weeks that has many economists suggesting the Canadian economy may have shrunk in the second quarter. Low oil prices are disproportionately affecting the Canadian economy, where the energy sector accounts for about 10% of gross domestic product.
Wholesale trade in Canada fell 1.0% in May to a seasonally adjusted 54.52 billion Canadian dollars ($41.98 billion), Statistics Canada said. The motor vehicle and parts subsector was down 3.1%, following gains in March and April.
Wholesale volumes also fell by 1.0%. Economists track volume as well as value because it can provide a better measure of economic activity, particularly at times when the value of the Canadian dollar is fluctuating.
The wholesale trade report came amid growing concern about the effect that low oil prices continue to have on the Canadian economy, which contracted by an annualized 0.6% in the first quarter. The Bank of Canada, which cut its main overnight interest rate by 25 basis points to 0.50% last week, has said it expects a recovery to be supported by the non-resource sector beginning in the third quarter.
The drop in wholesale trade wasn’t limited to Canada’s oil-producing region in the west. The provinces of Ontario and Quebec, long considered the country’s manufacturing hub, also saw declines in wholesale trade.
The increase in the previous month’s wholesale trade was revised slightly lower, to 1.7% instead of the previous estimate of 1.9%.
Canadian wholesalers make up the largest proportion of the country’s services sector, which accounts for about two-thirds of overall economic output. Wholesalers typically act as intermediaries in distributing merchandise and sell large quantities of goods to retailers, businesses and institutional clients.
Many economists believe Canada’s economy slipped into a recession during the first half of the year, based on a common view that a recession can be defined as two consecutive quarters of negative growth. The Bank of Canada said last week that it believes the economy contracted “modestly” during the first half of the year but didn’t use the term recession.
Krishen Rangasamy, senior economist at National Bank Financial in Montreal, said Monday’s reported decline in wholesale volumes, combined with last week’s drop in real factory sales, suggest real GDP likely fell for the fifth month in a row in May. Given those figures, “It’s looking like we’re going to have another quarter contraction,” he said.
Data on Canada’s May gross domestic product is due next week.
In May, wholesale inventories rose by a slight 0.1% to C$71.74 billion.
The motor vehicle and parts subsector recorded the most significant decline, at 3.1%. Sale in the miscellaneous subsector, which includes paper, agricultural supplies and recyclable material, fell 3.7%, to C$7.12 billion.
The inventory-to-sales ratio, which indicates how many months would be required to eliminate stockpiles if sales were to remain at current levels, rose to 1.32 in May from 1.30 in April.
