In February, wholesale sales edged down slightly 0.3% to $35.7 billion in goods and services. This is the third decrease for wholesalers in the past four months. As in the previous month, February's decline was largely attributable to the motor vehicles, parts and accessories sector. Excluding that sector, sales rose 0.4%.

Since February 2003, wholesale sales have generally been declining, with much of the decrease attributable to the automotive sector. Excluding that sector, the average growth of total sales was 0.2% for the last 12 months.

Chart 1
Wholesale sales

In February, 6 of the 11 trade groups, representing approximately 66% of total sales, registered a decline. In addition to the automotive sector (-3.6%), sectors contributing the most to the decrease in value terms were computers, software and other electronic equipment (-3.1%) and beverage, drug and tobacco products (-1.7%).

The decreased sales of these trade groups were offset in part by increased sales of lumber and building materials (+4.0%), industrial machinery (+2.2%) and metals and hardware (+3.8%).

In constant dollars, wholesale sales fell 0.7% in February.

Wholesale sales in the automotive sector post second consecutive decline

Sales in the automotive sector fell again in February (-3.6%). This decline followed the one recorded in January (-12.2%). Just as in the previous month, the high level of dealers' inventories continued to affect wholesale sales.

Sales of computers and electronics down

Sales of computers and electronics fell 3.1% after remaining stable in January (+0.1%). This was the second drop in the past three months. In fact, 2003 was a good year for wholesalers of these products-it was their first year-over-year increase in sales in four years. The growth of sales in 2003 was partly because of the launching of new products, declining prices and some recovery in the demand for computers.

Despite February's increase in industrial machinery sales, the trend weakened

Industrial machinery wholesalers saw their sales rise 2.2%. However, since November 2003, sales have begun to show signs of weakness, following a practically uninterrupted rise that began in the summer of 2002 and ended in October 2003. The second and third quarters of 2003 were especially favourable to wholesalers because companies substantially boosted their spending on industrial machinery, in part because of low interest rates. These, combined with a strong Canadian dollar, favoured investment in imported machinery.

Chart 2
Inventory-to-sales ratio

Wholesale sales linked to the housing market up in February

Sales of metals and hardware again rose in February (+3.8%). This rise followed on the growth registered in January (+1.1%). There were also increases in the lumber and building materials sector (+4.0%).

In February, according to the Canada Mortgage and Housing Corporation, housing starts rose nearly 10%. Also, the Canadian Real Estate Association announced the first increase in the home resale market since October 2003.

Dip in wholesale sales affects half the provinces

In February, five provinces posted a decrease in wholesale sales. The largest declines were registered in Saskatchewan (-3.1%), Newfoundland and Labrador (-2.9%) and New Brunswick (-1.2%). As in the previous two months, the drop in wholesale sales in Saskatchewan was largely attributable to the "other products" category that includes chemicals and other agricultural supplies.

Wholesalers in Newfoundland and Labrador, as well as New Brunswick, reported declines in both the automotive sector and the beverage, drug and tobacco products sector.

The decrease in the sales by Ontario wholesalers (-1.1%) was largely attributable to the automotive sector. More than 75% of the motor vehicles, parts and accessories trade group is concentrated in this province.

The strong increase observed in Nova Scotia (+3.4%) was partly because of increased sales of food products and computers and electronic products. This increase completely offset the 2.7% drop recorded in January. Despite the increased sales in February, wholesale sales in Nova Scotia have generally been trending downward since September 2003. Previously, sales had experienced a period of healthy growth starting in January 2002.

Chart 3
Inventories

Inventory-to-sales ratio up for second consecutive month

In February, the inventory-to-sales ratio edged up to 1.29, compared with 1.28 in January. Excluding the effects of August's power blackout, which caused problems in delivery, this ratio is the highest since June 2003. The increase in the ratio over the past two months is partly attributable to the automotive sector, which has had difficulty moving its inventories through to retailers.

In February, inventories rose 0.3%, primarily because of increases registered in the automotive and industrial machinery sectors. These two sectors tend to have the largest inventories in terms of value.