The Canadian economy seems to have fallen into a hole in June, but not for the reasons many had expected.
Statistics Canada reported Tuesday that wholesale trade plunged a massive 2.8 per cent in June to $48.8 billion, reversing the gains posted the previous two months. Wholesale trade also fell 2.9 per cent in volumes.
On top of a 1.3 per cent pull-back in manufacturing volumes, June's economic data is shaping up to be one of the weakest months since the 2008-09 recession. June GDP figures will be released on August 30 by Statistics Canada.
"Maybe this partly explains why employment was so weak in July," said Doug Porter, chief economist with BMO Capital Markets, pointing to the surprising loss of 39,400 jobs last month.
"Maybe there was a temporary dip in the economy in June that translated into a pull-back in hiring in July," Porter added. "The issue is that the weakness in the month is not entirely due to the usual suspects."
The Bank of Canada has estimated second-quarter growth — for the April-June period — was a weak one per cent, down from 2.5 in the first quarter.
Flooding, strike seen crimping economy
The central bank assumes that the Alberta flooding natural disaster and the construction strike in Quebec, both in June, would sap about 1.3 points from GDP performance. For that to occur, June would need to show an outsized 0.8 per cent retreat, even greater than most economists anticipate.
The trouble with the analysis is that the numbers have not shown the weakness to have been centred in either Alberta or Quebec.
The latest wholesale figures found the activity in Alberta was only down 1.5 per cent, while Quebec's dip was 2.6 per cent — less than the the national average. Instead the big drop came in Ontario, with a 4.0 per cent fall-off in wholesale trade, or about 70 per cent of the national total.
The same anomaly was witnessed in last week's factory numbers, which showed Quebec and Alberta posting gains and Ontario the weak link.
CIBC economist Emanuella Enenajor said the Quebec construction strike likely was responsible for a drop-off in building material sales, but the Alberta floods in late June played a "modest role in the month's disappointing results."
While economists and markets have largely discounted the June results as being rear-view indicators, the apparent lack of a significant impact from the twin-shocks in Alberta and Quebec also makes less likely the Bank of Canada's call for an oversized bounce-back in the third quarter, which runs July to September.
"Given the temporary nature of the shocks and the eventual reconstruction and repair of damaged infrastructure in the flooded areas in Alberta, a boost of 1.8 percentage points to GDP growth is expected in the third quarter," the bank reasoned in its July monetary policy report. The boost is a key reason why the bank's forecast is for an 3.8 per cent advance in GDP during the period, which would constitute one of the strongest quarters in years.
No rebound projected
Porter says he expects the second quarter GDP growth will come in slightly better than the central bank's call, but on the other hand "we don't see the big rebound in Q3 that the Bank of Canada is calling for."
Statistics Canada will release the second quarter GDP data next week.
Analysts are projecting stronger numbers in the second half of this year, however, based on the expectation that a swelling U.S. economy will lift Canadian sales as well, particularly in the export sector.
June's wholesale sales weakness was broadbased and widespread, with drops registered across all sectors and in seven of the 10 provinces.
The biggest drop in dollar terms was in the miscellaneous subsector, which fell eight per cent because of a steep decrease in the agricultural supplies industry, the first such loss after six months in a row of gains.
The main positive in the report was that inventories rose 0.8 per cent to $62.4 billion in June, suggesting production was firmer than sales.