Canada Wholesale Sales Grew at Double Expected Pace in April

By Paul Vieira Features Dow Jones Newswires

Wholesale transactions in Canada surged in April for a seventh consecutive monthly gain, likely stoking expectations of an interest-rate increase from the Bank of Canada -- perhaps as early as next month.

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Wholesale transactions increased 1% on a seasonally adjusted basis in April to 61.01 billion Canadian dollars ($46.15 billion), Statistics Canada said Tuesday. Market expectations were for a 0.5% rise, according to economists at Royal Bank of Canada.

In volume terms, April wholesale transactions rose 0.7% from the previous month.

March's wholesale-trade figures were also revised upward, and now indicate sales climbed 1.2% versus the earlier estimate of a 0.9% rise.

On a 12-month basis, wholesale trade rose 10.3%.

The April report, coupled with solid factory-shipments data and a robust labor market, further builds expectations of a sooner-than-expected rate increase from the Bank of Canada. Canada's central bank surprised markets last week when its two top officials struck a more bullish tone on the economy, and signaled they were setting the groundwork to increase the policy rate -- which sits at a near record low of 0.50%. Central-bank officials said last week the two rate cuts it delivered in 2015 at the height of the commodity-price shock "have done their work" in helping the economy adjust to lower oil prices.

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"Another day, another positive for the Canadian outlook," said Nick Exarhos, economist at CIBC World Markets.

Given April's wholesale trade report, Canadian output is on track to expand roughly 2.5% annualized in the second quarter after a 3.7% advance in the first quarter, Mr. Exarhos said. Spare industrial and labor capacity, or slack, in the Canadian economy will be largely absorbed by the end of 2017, "a reason for the Bank of Canada to be eyeing some tightening within the same time frame," Mr. Exarhos said.

Traders are pricing in a rate increase in October, according to the overnight index-swap market, with some analysts contending an upward move in July can't be ruled out given the central bank's about-face in messaging and its history of surprising markets. The OIS market indicates a 45% probability of a rate rise in July. The better-than-anticipated wholesale trade report will likely reinforce those expectations.

Wholesale trade is the largest component of Canada's services sector -- which in turn accounts for two-thirds of the country's economic output. Wholesalers tend to move merchandise in large quantities to institutional, industrial and retail clients. Markets tend to overlook the wholesale-trade data, even though it has a bigger weight in gross domestic product than the more closely watched retail sales, according to economists at BMO Capital Markets.

Sales of machinery and equipment posted the biggest gain in dollar terms, up 7.3% in April to C$12.44 billion. Food products rose 1.4% to C$10.73 billion. Weighing on the results was the auto component, as motor vehicle and parts declined 1.7% to C$11.35 billion. Excluding auto, wholesale sales climbed at a faster 1.7% clip in April.

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

June 20, 2017 09:50 ET (13:50 GMT)