Week in review: Wholesale sales were flat in July

Week in review

Canada – Retail sales rose 0.5% in July after a downwardly revised +0.4% print in the prior month. In July, sales were up in 6 of the 11 subsectors, including a 2% jump for autos/parts dealers. Excluding autos, sales were flat as increases for sellers of clothing, sporting goods, health/personal care items, general merchandise, and miscellaneous items were exactly offset by declining sales of gasoline, furniture, building materials, food/beverage, and electronics. In real terms, retail sales rose just 0.2% in July. Nominal sales were up in six of the 10 provinces. On a yearon- year basis, BC remains in the lead with sales up 5.7% followed by Ontario at 4.6%. The worst performers on a yearon- year basis are not surprisingly Alberta (-3.7%), Saskatchewan (-3.6%), and Newfoundland & Labrador (-0.7%) which are still feeling the brunt of the oil price shock.

Wholesale sales were flat in July. There were gains in three of the 7 broad subsectors (representing 52% of total sales), namely autos/parts, machinery and equipment and miscellaneous items. But that was exactly offset by declines in sales of building supplies, food/beverage, personal household goods, and farm products. Inventories were up 0.6% causing the inventory to sales ratio to rise to a four-month high and close to levels last seen in 2009. In real terms, wholesale sales fell 0.4%.

The Survey of Employment, Payrolls and Hours (SEPH), a survey of establishments (unlike the Labour Force Survey which surveys households), showed that Canada gained 38K jobs in July. Weekly earnings were little changed in July and that caused the year-on-year wage growth to decline to 1.6%. Annual wage growth topped the national average in info/culture, finance/insurance, professional services, management, wholesale trade, retailing, administrative and support services, and transportation/warehousing. The worst wage performances were not surprisingly in mining/oil/gas (- 2.9% year-on-year), although there were also sharp declines in forestry, arts/entertainment/recreation, education services and real estate/leasing. The only province with year-on-year declines in weekly earnings is Alberta at -1.2%. All told, wage growth remains tame in Canada. But employment is showing resilience. As it has done in most years over the past decade, the SEPH is again providing a more upbeat picture of the labour market than the LFS. The SEPH average of 18K jobs/month for the first seven months of 2015 is double the tally of the paid component of the LFS.

In a speech this week, Bank of Canada Governor Stephen Poloz highlighted the merits of market forces. He acknowledged that long-term swings in raw material prices can be challenging and force business to make decision about the way capital and labour are allocated. While these decisions often lead to difficult adjustments, they are necessary for the maximization of our economic potential. He said our flexible exchange rate and inflation targeting framework can help in making the adjustment easier. Policy-makers can also help in these efforts by encouraging economic flexibility e.g. allowing the necessary adjustments to take place and not frustrating flows of investment or labour from one region to another.

United States – The durable goods report showed new orders falling 2% in August. The prior month was revised down to +1.9% (from +2.0%). In August, transportation orders fell 5.8% due to declines for both autos/parts and civilian aircrafts after big gains in prior months. Excluding transportation, orders were flat. Here too, there was a downward revision to the prior month to +0.4% (initially reported as +0.6%). Orders of non-defense capital goods excluding aircrafts fell 0.2% after large gains in the prior two months. Despite falling slightly in August, shipments of nondefense capital goods ex-aircraft, a proxy for business investment spending, remain on track for the best growth performance since 2014Q3. So, after a couple of soft quarters, business investment is once again on the rise.

Existing home sales fell 4.8% in August to 5.31 million units. The decrease was due to both single family units (-5.3%), and multis (-1.6%). The months supply of homes at current sales rate rose to 5.2, the highest in four months. The median resale price fell slightly to $228,700 but is still 4.7% higher than yearago levels (+5.1% for singles and +2.2% for multis). Only 22% of August sales were made to cash buyers, while the share of distressed sales in total sales was just 7%, both at their lowest in months.

New home sales rose a consensus-topping 5.7% to 552K in August. That’s the highest level of sales since February 2008. The months supply of homes at current sales rate fell to 4.7 the lowest in months. The median sale price rose to $292,700, or 0.3% above year-ago levels.

Markit’s flash/preliminary estimate of the manufacturing purchasing managers index was unchanged at 53.0 in September, i.e. still at a 22-month low. A reading above 50 implies expansion in manufacturing activity. The production sub-index expanded at a faster rate than the prior month, while the pace of new orders and employment creation eased somewhat.

The weekly jobless claims report showed initial claims rising slightly to 267K in the week of September 19th. The more reliable 4-week moving average dropped further to reach 272K. Continuing claims for the prior week fell 1K to 2.24 million.

The third estimate by the Bureau of Economic Analysis of Q2 GDP showed growth of 3.9% (revised from the second estimate of 3.7%). There was an upward revision to consumption (due to services) and residential investment. The contribution of inventories was lowered to zero and that’s good news for production in the second half of the year.

In a speech this week, Fed Chair Janet Yellen restated the FOMC’s desire to raise the fed funds rate later this year. She acknowledged that the Fed has not yet achieved its objectives under the dual mandate given the continuing slack in the labour market and below target inflation. However, she expects a return to maximum employment and for inflation to get back to 2% over the next few years if economic growth remains strong. She concluded by saying that most FOMC participants, including herself, expect to raise the fed funds rate later this year, “followed by a gradual pace of tightening thereafter”.

World – Flash manufacturing purchasing managers indices for the month of September were released by Markit for a range of countries. In China, the PMI fell to just 47 (from 47.3 in the prior month), the lowest since 2009. New orders, output, and employment all fell at a faster rate than in the prior month. Japan’s PMI dropped to 50.9 as employment fell into contraction mode. However, both new orders and output remain in expansion. The eurozone’s PMI fell to 52.0 (from 52.3 in the prior month) although all of the major sub-indices remained in expansion territory, i.e. output, new orders and employment. The eurozone’s services PMI fell to 54 in September (from 54.4 the prior month).

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