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Volume 14, Issue 19, May 21, 2014

Inside This Issue:

• Last Call to Register for the CHHMA Ontario Golf Tournament
• Bring a Group Out to CHHMA’s Night at the Races – June 18
• Lowe’s May Sales Improve After Severe Winter Hits First Quarter Results
• Target Canada President Ousted, Replaced with U.S. Company Veteran
• Home Depot Increases Full-Year Guidance Despite First Quarter Earnings Miss
• Walmart Canada’s Expansion Push Hits First Quarter Results
• What’s Left of Sears Canada? 
• Home Resales in Canada Heat Up in April
• Canadian Wholesale Trade Drops Unexpectedly in Part Due to Weaker Auto Sales
• Latest U.S. Economic News

Association News

Last Call to Register for the CHHMA Ontario Golf Tournament        
The 45th Annual CHHMA Ontario Golf Tournament is set for next Tuesday, May 27 at Angus Glen Golf Club in Markham, Ontario. Those playing on the South Course will have the opportunity to try out the newly renovated course for the first time!

Again this event will be in support of the inspiring children & young adults of "Ontario Special Olympics". 

There are still hole sponsorship opportunities available so consider sponsoring a hole! Your company will receive recognition and thanks on all signage and promotion surrounding this event, while saluting the accomplishments of young athletes who through sports value themselves for their abilities, not disabilities.

For registration, hole sponsorship and further event details, go to: or contact Pam Winter at, 416-282-0022 ext.21.

Also, we will be holding a Silent Auction in support of the CHHMA Scholarship Program which provides support for children of CHHMA member company employees to attend university or college. Consider donating an item or items: housewares or hardware products, golf items or any item interesting and/or unique would be sincerely appreciated. Whether or not you can attend the event, your donation will contribute to the Scholarship Program ( which has benefited 70 young people since 2001.

Click here for a Silent Auction Pledge Form:  

So we hope you can make it out next Tuesday for a fun day on the course with colleagues and customers from the industry and help support some worthy causes too. 

Bring a Group Out to CHHMA’s Night at the Races – June 18 
CHHMA’s Night at the Races is being held at the Woodbine Racetrack in Toronto on June 18 and is an excellent venue to entertain your customers and their spouses or invite your employees for a bit of team building. The thoroughbred racing and tasty buffet makes for an all-round fun evening!

Held in the Favourites Dining Room, you have a great view of the track from any of our VIP tables.

You can now register at:

So don't miss Wednesday, June 18th at Night at the Races..... 

Industry News
Lowe’s May Sales Improve After Severe Winter Hits First Quarter Results  

Lowe’s Cos Inc. said its sales picked up in May, after the company reported weaker-than-expected quarterly results as a severe winter in the United States hurt traffic to its stores.

The world’s second largest home improvement chain also maintained its sales growth forecast of 5% for the year ending Jan. 30.
Sales grew 2.4% in the first quarter ended May 2, as strong demand for indoor products more than offset the impact of weakness in outdoor categories.

Lowe’s raised its full-year earnings forecast to $2.63 per share from $2.60 per share due to a lower tax rate.

Analysts on average were expecting $2.61 per share, according to Thomson Reuters.

Lowe’s revenue rose to $13.40-billion in the first quarter, but came below the average analyst estimate of $13.86-billion.

Same-store sales rose 0.9%.

Analysts polled by Consensus Metrix had expected same-store sales to rise by 5%cent.

Lowe’s said its net income rose to $624-million, or 61 cents per share, from $540-million, or 49 cents per share.

Excluding one-time items, the company earned 58 cents per share. Analysts had expected a profit of 60 cents per share.

Source: Reuters

Target Canada President Ousted, Replaced with U.S. Company Veteran 
Target Corp. has ousted the head of its troubled Canadian operations.

The company said on Tuesday that Target Canada president Tony Fisher is departing immediately and being replaced by Mark Schindele, senior vice-president of merchandising operations in the U.S., who has 15 years experience at the company.

Target also plans to name a non-executive chairman in Canada, a newly created advisory role “to provide counsel and support to the president of Target Canada to ensure all strategies and tactics align with the Canadian marketplace.”

“One of our key priorities is improving performance in Canada more rapidly and we believe it is important to be aggressive,” said Target Corp. interim president and chief executive officer John Mulligan.

Mr. Fisher oversaw Target’s ambitious opening of 127 stores in this country, but the retailer unexpectedly faltered in this market despite high awareness and enjoyment of the brand by many Canadians who had visited the retailer’s U.S. stores.

Target posted an operating loss of close to $1-billion (U.S.) in Canada for 2013, after initially saying it expected Canadian operations to be profitable as early as the fourth quarter of 2013.

Problems in Canada included complaints that prices were higher than those south of the border and that store shelves were often bare.

The company has said it is addressing the problems by improving the supply chain and putting a greater emphasis on deals.

Faye Landes, retail analyst at Cowen and Co., said the change at the top is “further confirmation that Target Canada has not progressed as the company had planned.”

Luke Sklar, partner at retail consultancy Sklar Wilton & Associates Ltd., said that Mr. Fisher’s departure was an inevitable casualty of Target’s troubles.

It “reinforces that corporate life is all about managing expectations,” Mr. Sklar said.

Mr. Fisher’s problem was that he badly inflated the already high expectations of Target among Canadians with pop-up stores and other “teasers” that backed up “fawning” press reports.

The latest move is a signal that Target is not abandoning this country, said Perry Caicco, retail analyst at CIBC World Markets.

“But in appointing another American in-house solution, it is not clear it really understands the massive disconnect it has with Canadian consumers,” he said. But he added the new president in Canada “is a merchant, and pricing has been identified as a problem, so we would expect much more aggressive pricing in the second half of the year.”

He said Target will likely place a “Canadian big name” in the “non-executive chairman” role. “Depending on the name, that role could become increasingly ‘executive.’”

Mr. Caicco said he guessed that Target will soon produce a reduced “new outlook” for Canada which will contemplate more price reductions but much less capital investment.

“The focus will be on store productivity rather than expansion.

Target will soon name a new CEO for the entire corporation, and at least two Canadians are in the running. All in all, we believe the focus on Canada will be more intense going forward. As the productivity in the store base ratchets upward, it will keep pressure on Canadian merchants through 2014 and 2015, particularly in the Ontario market.”

Mr. Schindele – the new president of Canadian operations – played a central role in the launch of new store formats in the U.S., including PFresh, CityTarget and Target Express and has overseen Target’s merchandising operations, including systems, global sourcing and product development, the company said.

Target Corp. is also promoting three senior merchandising managers to executive vice-president positions at its U.S. operations as well as “realigning the team to better leverage functional expertise as the company focuses on driving improved performance.”

The moves follow the abrupt resignation two weeks ago of Target CEO Gregg Steinhafel after the company experienced a massive data breach during the holiday season and put in a poor performance in its fledgling Canadian operations.

Chief financial officer John Mulligan took over as interim CEO.

With Mr. Steinhafel having left the CEO position on May 5, now “the other shoe drops,” retail consultant Ed Strapagiel told the Globe and Mail.

“Given the debacle in Canada, Tony Fisher’s days were numbered. If anything, I’m almost surprised that it didn’t come sooner,” he said.

“There’s more to this than just ritual bloodletting. One of Target’s big problems in Canada is stocking and inventory management, and that’s an entirely internal issue. Tony Fisher’s team really dropped the ball on that one.”

He said it must be strategic that the new Target president, Mr. Schindele, has a strong background in merchandising operations.

“That’s what Target needs to fix most,” Mr. Strapagiel said. “There’s no point in driving traffic to the stores if the product isn’t there.”

He said Target needs to rethink its product offerings in Canada. “Simply being another Walmart isn’t going to cut it.”

First Quarter Results

Meanwhile, Target Corp. reported a 16% drop in first-quarter profit on Wednesday but showed signs of progress in its efforts to rebuild customer confidence in the wake of a massive theft of payment card data and a botched expansion into Canada.

Target reported a 0.3% drop in U.S. same-store sales.

Analysts had expected a fall of 1.1%, according to a poll by research firm Consensus Metrix.

"Traffic was dramatically better than our late fourth-quarter trends," the company said.

Traffic improved throughout February and was "relatively strong" in March despite the harsh weather that other retailers have blamed for weak sales, interim Chief Executive John Mulligan said on a call with reporters.

But he said that while the company was "pleased with this momentum", more needed to be done.

"We are not where we need to be (in Canada)," he said.

The company lowered its adjusted full-year profit forecast to $3.60-$3.90 per share from $3.85-$4.15 per share.

Analysts on average were expecting full-year earnings of $3.98 per share, according to Thomson Reuters.

Net income fell to $418 million, or 66 cents per share, in the quarter ended May 3, from $498 million or 77 cents per share, a year earlier.

Pre-tax costs related to the data breach totaled $26 million in the quarter, primarily for legal and other services. Including insurance proceeds, expenses were $18 million.

In the preceding quarter, the company incurred $61 million in pre-tax costs related to the breach.

Excluding items, the company earned 70 cents per share.

Sales rose 2.1% to $17.05 billion. Analysts on average were expecting earnings of 71 cents per share, on revenue of $17 billion.

In its Canadian segment, the company said its operating loss grew 3.1% to $211-million from $205-million a year earlier. Sales jumped 357% to $393-million from $86-million. It had only 24 stores in Canada in the period a year ago, compared with 127 today.

Source: The Globe and Mail, The Financial Post, Reuters

Home Depot Increases Full-Year Guidance Despite First Quarter Earnings Miss
Home Depot’s fiscal first-quarter net income climbed 12% as a key sales metric improved despite a slow start to the spring selling season due to bad weather.

But both its adjusted earnings and revenue came in short of Wall Street’s expectations.

Nonetheless, the #1 home improvement retailer raised its full-year earnings forecast.

Home Depot Inc. said on Tuesday it earned $1.38-billion, or $1 per share, for the three months ended May 4. That compares with $1.23-billion, or 83 cents per share, a year earlier.

The latest quarter’s results included a benefit of 4 cents per share related to the sale of part of its equity ownership in HD Supply Holdings Inc.

Stripping out the benefit, earnings amounted to 96 cents per share.

Analysts, on average, expected earnings of 99 cents per share, according to a FactSet survey.

Revenue for the company rose 3% to $19.69-billion, but missed Wall Street’s estimate of $19.97-billion.

Same-store sales at U.S. stores increased 3.3%. For the entire company, the metric rose 2.6%.

"The first quarter was impacted by a slow start to the spring selling season. But we had solid results in non-weather impacted markets and expect our sales for the year to grow in line with the guidance we previously provided," said Frank Blake, chairman and CEO.

The company said its sales were "robust" in May and that it expected to realize in the current quarter most of the sales lost in the first quarter due to a severe winter in the U.S.

Home Depot said its sales of landscape items and products such as concrete were improving as a result of repairs needed after the harsh winter weather.

Home Depot now foresees fiscal 2014 earnings of $4.42 per share. Its prior guidance was for earnings of $4.38 per share. Analysts expect full-year earnings of $4.41 per share.

The chain reaffirmed its outlook for 2014 revenue to rise by about 4.8%. Based on 2013’s revenue of $78.81-billion, this implies approximately $82.6-billion.

Wall Street expects revenue of $82.62-billion.

Source: Home Depot, The Associated Press, Reuters

Walmart Canada’s Expansion Push Hits First Quarter Results 
Walmart Canada’s market share just keeps growing, but its drive to expand in an ever competitive retail sector weighed on the company’s quarterly results released last Thursday, which marked the mass merchant’s sixth-consecutive quarter of falling same store-sales and traffic.

The retailer saw an overall revenue gain of 1.2% in the period, while same-store sales, a key retail industry bellwether that strips out the effects of added square footage year-over-year, fell 1.4%.

Walmart, battling Target and aggressively expanding its grocery business in Canada, saw customer traffic slide 2.8% compared with the same quarter last year. That was moderated by a rise in average customer spending at the till, which was up 1.4%.

“The broader battle for customers between Walmart Canada and Target Canada has affected the promotional pricing of high-traffic [merchandise], categories as Target seeks to attract consumer trial,” analyst Keith Howlett of Desjardins Securities said in a note to clients. “We expect competitive intensity within the grocery market to moderate in the second half of 2014 as the opening of Target stores a year ago is fully cycled.”

Meanwhile, Canadian grocers Loblaw, Metro and Sobeys have been citing more aggressive price competition in the market for the last year, and in addition to stepping up promotions, they are building more stores under their discount banners No Frills, Food Basics and FreshCo.

“Our continued price investment resulted in an increased price gap to competitors,” David Cheesewright, president and chief executive of Walmart’s international division, told analysts on a conference call last Thursday, in reference to Canadian results for the period ended April 30.

Wal-Mart Stores Inc. does not fully break out its Canadian sales and profit figures, but industry analysts peg sales at roughly $23-billion annually.

Operating income outpaced sales, Mr. Cheesewright said, while online sales at were up 134%, a figure incorporated into same-store sales growth.

“Sales were strongest in food and consumables, and according to [industry research firm] Nielsen, we increased market share 42 basis points for the 12 weeks ended April 19,” Mr. Cheesewright said.

Walmart is spending $500-million in Canada this year to upgrade its stores and add more food space, enhance its fresh food distribution network, and strengthen its e-commerce division. Two-thirds of the retailer’s 390 big-box outlets now include a full grocery store.

“The opportunity for food is vast, both for putting it in the remainder of the stores that have yet to become supercenters, and also for just continuously getting better at being a fresh food retailer,” Walmart Canada president Shelley Broader said in a recent interview with the Financial Post. Walmart is building additional capacity for fresh food distribution “so we can get the product from the field to the fork faster,” she said.

Meanwhile, Walmart Canada’s parent company’s first-quarter net income fell 5% as the world’s largest retailer was hurt by bad winter weather and continues to see its low-income customers struggle in the U.S. and around the globe.

Its performance missed Wall Street’s expectations, and the company gave a weak second-quarter earnings forecast.

The results underscore the big challenges that face the company’s new CEO, Doug McMillon, who took over the top role on Feb. 1. The retailer is considered an economic bellwether, with the company accounting for nearly 10% of nonautomotive retail spending in the U.S. Walmart’s latest performance appears to show that many people are having a hard time stretching their money to the next paycheque.

For the period ended April 30, the company earned $3.59 billion (dollar figures U.S.), or $1.11 per share. That compares with $3.78 billion, or $1.14 per share, a year ago.

Walmart Stores Inc. said that bad weather hurt earnings by about 3 cents per share. Its performance was also dinged by a higher-than-expected tax rate.

Income from continuing operations was $1.10 per share. Analysts, on average, expected earnings of $1.15 per share, according to a FactSet survey.

“Like other retailers in the United States, the unseasonably cold and disruptive weather negatively impacted U.S. sales and drove operating expenses higher than expected,” President and CEO Doug McMillon said in a statement.

But Walmart has been suffering from weak sales in the U.S. for some time. Sales at U.S. stores open at least a year dipped 0.2% in the quarter, the fifth consecutive quarter of decline the metric.

Total revenue rose 1% to $114.96 billion. Wall Street was calling for higher revenue of $116.43 billion.

McMillon said in a prerecorded call that U.S. sales rose during the second half of the quarter, but that Sam’s Club had lower-than-expected sales. While membership income climbed, McMillon said it was mostly because of a fee increase started last year.

Total U.S. revenue rose 2% to $67.85 billion. Walmart International’s sales rose 3.4% in the quarter, on a constant currency basis.

For the second quarter, Walmart anticipates earnings from continuing operations in a range of $1.15 to $1.25 per share. Analysts predict earnings of $1.28 per share.

Source: Financial Post, The Associated Press

What’s Left of Sears Canada?    
(From Articles by Jonathan Ratner and Hollie Shaw, The Financial Post)

Sears Holding Corp.’s plan to explore a sale of its 51% stake in Sears Canada Inc comes as little surprise.

It is no secret that the struggling retailer run by hedge fund manager Edward Lampert needs additional financing due to the cash burn at its retail operations. In fact, management publicly discussed the sale of Sears Canada after reporting weak fourth quarter results.

At current prices, the stake is worth about $800-million.

The timing of a potential sale is far more interesting, particularly since Sears Canada sold its stake in seven trophy properties last year, including its crown jewel in Toronto’s Eaton Centre.

This has Credit Suisse analyst Gary Balter wondering how much of the Sears’ significantly diminished adjusted EBITDA in 2013 came from those properties.

Many have criticized Mr. Lampert for selling off high-quality locations. Mr. Balter noted that at the company’s recent annual meeting, the CEO countered that claim by “conveniently” only discussing U.S. locations.

“One has to wonder what the buyer of the remainder of Sears Canada gets,” the analyst told clients.

Sears Canada’s adjusted EBITDA has fallen $452-million since 2009 to just $3-million in 2013 as the retailed faces a wave of competition from the Wal-Mart Stores Inc., Target Corp. and eventually Nordstrom Inc.

Mr. Balter noted that the company still operates 24.8 million square feet of retail space, but only 14 full-line department stores are company-owned, and much of the best real estate has been sold.

“Yes, Sears Canada has a net cash position, but we expect Sears Holdings to take as much cash as they can beforehand in the event of any sale of spin-off,” the analyst said.

Moody’s Scott Tuhy noted that a deal to sell Sears Canada could generate significant cash for Sears Holdings that would help offset the company’s expected cash burn in 2014 and allow it to continue maintaining a good liquidity position.

Mr. Tuhy also pointed out that since Sears Canada is not currently generating operating profits, a sale would not result in the loss of a profitable asset.

“While the incremental liquidity will be positive for Sears Holdings, this move in and of itself does not address Sears Holdings ongoing operational challenges,” the analyst said, citing the company’s domestic adjusted EBITDA loss of US$340-million its most recent fiscal year.

He forecasts its cash burn to exceed US$1-billion in fiscal 2014.

“The Land’s End and Sears Canada transactions will provide liquidity however the company still faces meaningful operating challenges,” Mr. Tuhy said.

The only meaningful cash flows received by Sears Holdings from Sears Canada in fiscal 2013 were its share of the special dividend paid in fiscal 2013, worth approximately $260-million. “However, this was viewed as a one-time event,” the analyst said. “As such, if the stake is sold there would be limited impact on Sears Holdings domestic earnings or cash flows.”

CIBC World Markets analyst Perry Caicco believes the value of Sears Canada is almost entirely in its leases, with the retail operation in its current form worth about $1 per share.

“We have always assumed that almost the entire value of Sears Canada was in the real estate, and indeed the company has monetized some of the more high-profile assets,” he said.

Mr. Caicco noted that Sears Canada has monetized a number of its best assets and now only has five or six primary properties left with low-cost leases.

“The most likely buyer would be a consortium of private equity, real estate and asset management companies that could quickly liquidate and flip another 20 or 30 properties, downsize the retail infrastructure, and operate the remaining Sears chain as a suburban/rural mass merchant with a thriving online business,” the analyst said in a recent report.

“But in order for a buyer to generate the outsized returns necessary for taking a risk this big, we do not see them paying much more than the existing share price.”

However, with no single retailer seen as an obvious suitor to acquire the entire operation, it’s likely Sears Canada will continue to languish in this market for some time, even if Sears Holdings Corp. sells its 51% ownership in the business.

One of the hurdles to a rival retailer acquiring Sears Canada’s entire network, industry observers say, is its highly diverse range of retail operations, which include 113 department stores, based largely in traditional shopping malls, 48 big-box Sears Home stores, 243 rural dealer stores, 11 outlet stores and 97 Sears Travel offices.

“In our view, the complexity of the situation requires private equity participation in order to realign the assets into separate components that are manageable and of interest to different retail operators,” analyst Keith Howlett of Desjardins Securities wrote in a note to clients last week.

He sees four distinct groups of buyers who could work together to forge a deal, including major landlords and pension funds who are seeking out Sears Canada’s shopping mall locations; private equity or retail turnaround groups such as Sun Capital, Hilco and Gordon Brothers; domestic retailers such as Hudson’s Bay who might wanting to shore up market share; and U.S. department stores such as Macy’s or Kohl’s.

Sears Canada can keep operating all the while. At the end of fiscal 2013, the retailer had significant cash resources of $513.8-million and no long-term debt, even as it failed to achieve operating profitability.

“The Canadian operation can function on its own as a money-losing entity by itself, without the ties to the U.S. operation,” Mr. Smerdon said.

“I don’t see the brand disappearing within the next two to three years. In order for a change to happen quickly, you would have to have somebody ready to walk in and take it over with its own brand, and I don’t see that happening quickly, particularly given the experience Target has had.”

Sears entered Canada in 1953 in partnership with Robert Simpson Co. and formed Simpsons-Sears, which was renamed Sears Canada in 1984.

It functioned as a strong suburban and rural merchant and was viewed as a savior after it bought the insolvent Eaton’s chain in 1999, for a time maintaining the Eaton name on several urban stores.

But pouring resources into downtown stores with a different, more fashionable lineup of goods than its traditional outlets carried proved to be a critical and distracting misstep for the brand.

“Retail has a lifespan that is shorter than it was a generation ago, and you have to be very tough and focused to survive,” said Anthony Stokan, shopping centre and retail consultant at Anthony Russell Inc. in Toronto.

“Sears really began to unravel when they sank hundreds of millions of dollars into revitalizing Eaton’s. They had no real fashion edge and since then it has been a downward spiral.

First Quarter Results

Meanwhile, on Wednesday, Sears Canada reported that its first-quarter loss more than doubled as sales continued to decline with low demand for spring merchandise.

The company said its net loss widened to $75.2 million, or 74 Canadian cents per share, in the first quarter ended May 3, from $31.2 million, or 31 Canadian cents per share, a year earlier.

Revenue fell 11% to $771.7 million.

Same-store sales decreased by 7.6% in the quarter.

Source: The Financial Post

Economic News
Home Resales in Canada Heat Up in April

Canadian home sales were up 2.7% from March to April, boosted by the Vancouver and Toronto markets, according to statistics released by the Canadian Real Estate Association (CREA) last Thursday. 

However, sales through the Multiple Listings Service were down 0.3% compared with a year ago and one per cent below the 10-year average.

CREA said the April sales were up compared with March in half of all local housing markets, dominated by a rebound in Vancouver and Toronto.

“Greater Vancouver and Greater Toronto fuelled the anticipated spring pick up in national home sales in April which masked softer activity in a number of smaller markets,” said CREA President Beth Crosbie.

The decline in sales activity below the 10-year average was broadly based. “Sales activity for the month of April and for the year to date came in below the 10-year average in more than 60% of all housing markets,” said Gregory Klump, CREA’s Chief Economist. “This shows that tightened mortgage rules and guidelines are working as intended to keep activity in check despite mortgage interest rates remaining extraordinarily low.”

The trend for new listings has mirrored the trend for sales over the past three months, with the number of newly listed homes rising 2.9% in April on the heels of smaller gains in February and March. New listings were only up in about 60 per cent of local markets; however, as was the case with sales activity, outsized gains in Greater Vancouver and Greater Toronto boosted the increase nationally.

The national sales-to-new listings ratio was 51.9% in April, virtually unchanged from 52.0% in March and little changed from 52.3% in January and February. Since early 2010, the ratio has remained firmly entrenched within the 40 to 60% range that marks balanced market territory.

The number of months of inventory has been edging marginally lower since the beginning of 2014. There were 6.3 months of inventory nationally at the end of April 2014 compared with 6.4 months at the end of February and March and 6.5 months at the end of January.

As with the sales-to-new listings ratio, the number of months of inventory continues to point to a well balanced housing market nationally, with the measure holding close to its long-term average in the vast majority of markets.

The actual (not seasonally adjusted) national average price for homes sold in April 2014 was $409,708, an increase of 7.6% from the same month last year. The national average price continues to be skewed upward by sales activity in Greater Vancouver and Greater Toronto, which are among some of Canada’s most expensive housing markets. Excluding these two markets from the national average price calculation, the year-over-year increase diminishes to 4.8%.

The MLS Home Price Index (MLS HPI) provides a better gauge of price trends because it is not affected by changes in the mix of sales activity the way that average price is.

The Aggregate Composite MLS HPI rose 5.02% on a year-over-year basis in April, which is slightly less than the 5.19% gain recorded in March. This marks the first deceleration in year-over-year price growth since April 2013.

Year-over-year price growth picked up for townhouse/row units, but slowed for one- and two-storey single family homes and apartment units.

Year-over-year price gains were led by two-storey single family homes (+5.84%) and one-storey single family homes (+5.35%). This was closely followed by price increases for townhouse/row units (+4.52%). The price increase for apartment units was comparatively more modest (+3.35%).

Year-over-year price growth in the MLS HPI varied among local housing markets tracked by the index, with the biggest gains having been posted by Calgary (+9.52%), Greater Toronto (+7.01%), and Greater Vancouver (+3.64%).

Source: CREA, The Canadian Press

Canadian Wholesale Trade Drops Unexpectedly in Part Due to Weaker Auto Sales             

Canadian wholesale trade unexpectedly dropped by 0.4% to $50.5 billion in March, pulled down in part by weaker sales of motor vehicles, Statistics Canada data indicated on Tuesday.

Market operators had forecast a 0.4% increase after February’s 1.1% advance. Lower sales were recorded in three of the seven subsectors, which together accounted for 51% of wholesale sales.

In volume terms, wholesale sales were down 0.2%.

Year-over-year, wholesale sales are up 2.1% from March 2013.

The motor vehicle and parts subsector recorded the largest decline in March, falling 3.0% to $8.1 billion, the lowest level since September 2012. The motor vehicle industry (-4.4%) accounted for the decrease. Retail sales of motor vehicle and parts were flat in February.

Sales in the machinery, equipment and supplies subsector declined 1.4% to $10.6 billion, a third decrease in four months. The computer and communications equipment and supplies industry (-5.7%) accounted for most of the subsector's decline. Sales in this industry fell to the lowest level in nine months.

Lower sales were also recorded in the personal and household goods subsector, which fell 1.5% to $7.2 billion as a result of lower sales in five of its six industries.

The food, beverage and tobacco subsector rose 1.2% to $10.1 billion, the fifth increase in six months. All of the subsector's industries contributed to the gain, with the largest contribution coming from the food industry (+1.1%).

A fourth consecutive monthly increase was recorded in the miscellaneous subsector, which rose 1.7% to $6.7 billion in March. All but one of the subsector's industries contributed to the increase.

In March, sales rose 0.7% to $7.1 billion in the building material and supplies subsector, the third consecutive monthly increase. This month's level was the highest on record for the subsector.

In March, lower sales were recorded in five provinces, which together accounted for 60% of wholesale sales. Ontario was the largest contributor to the decline.

Inventories recorded a third consecutive gain in March, rising 2.3% to $64.1 billion, the highest level on record. Increases were recorded in five of seven subsectors, accounting for 91% of wholesale inventories.

The largest increases in dollar terms were in the motor vehicle and parts subsector (+6.9%) and the machinery, equipment and supplies subsector (+1.7%), the third consecutive gain for both subsectors.

The building material and supplies subsector (+2.8%), the personal and household goods subsector (+1.3%), and the miscellaneous subsector (+0.9%) all recorded their third gain in four months.

The inventory-to-sales ratio rose from 1.24 in February to 1.27 in March.

Source: Statistics Canada, Reuters

Latest U.S. Economic News
U.S. Housing Starts Up Sharply; Permits Highest Since 2008
U.S. housing starts jumped in April and building permits hit their highest level in nearly six years, offering hope that the troubled housing market could be stabilizing.

The Commerce Department said last Friday that groundbreaking increased 13.2% to a seasonally adjusted annual pace of 1.07 million units, the highest level since November 2013.

Starts rose by a revised 2.0% in March. They had previously been reported to have gained 2.8%.

Economists polled by Reuters had forecast starts rising to a 980,000-unit rate last month.

The U.S. housing market recovery has stalled as a combination of higher mortgage rates and rising property prices, against the backdrop of stagnant wage growth, makes housing less affordable for many Americans. A cold winter also weighed on activity.

The residential sector contracted in the first three months of 2014, declining for a second consecutive quarter.

With the multi-family sector segment continuing to drive residential construction, housing is unlikely to contribute to economic growth this year for the first time since 2010.

Last month, groundbreaking for single-family homes, the largest segment of the market, rose 0.8% to a 649,000-unit pace. Starts for the volatile multi-family homes segment surged 39.6% to a 423,000-unit rate.

Permits to build homes jumped 8.0% to a 1.08-million unit pace in April, the highest since June 2008. Economists had expected permits to rise to a 1.01-million unit pace.

Permits for single-family homes rose 0.3% to a 602,000-unit pace.

Single-family homes permits continue to lag groundbreaking, suggesting that single-family starts could decline in the months ahead to bring them in line with permits.

A survey from last Thursday showed confidence among single-family home builders slipped to a one-year low in May.

Permits for multi-family homes soared 19.5% to a 478,000-unit rate in April.

Source: Reuters

U.S. Consumer Sentiment Slips in May, Focus on Wages
A monthly gauge of U.S. consumer sentiment fell in May as a gloomy view on income growth clouded an otherwise positive economic outlook, a survey released last Friday showed.

The Thomson Reuters/University of Michigan’s preliminary May reading on the overall index on consumer sentiment came in at 81.8, down from 84.1 the month before.

It was also below the expectation of 84.5 among economists polled by Reuters.

“The main concern behind the small May loss involved dispiriting trends in wages,” survey director Richard Curtin said in a statement, as the median gain in household income for the next year was seen below inflation expectations.

However, Curtin said, “consumers judged the current state of the economy at the most favorable levels in ten years.”

Some 58%t of consumers reported that the U.S. economy had improved, up from 49% in April. The May proportion matched two readings from 2013 as the highest going back to 2004.

The survey’s barometer of current economic conditions fell to 95.1 from 98.7 and below a forecast of 99.0.

The gauge of consumer expectations slipped to 73.2 from 74.7 and fell short of an expected 75.0.

The survey’s one-year inflation expectation remained unchanged from last month at 3.2%, while the survey’s five-to-10-year inflation outlook dipped to 2.8% from 2.9%.

Source: Reuters

U.S. Consumer Prices Post Biggest Gain in 10 Months
U.S. consumer prices recorded their largest increase in 10 months in April, pointing to some inflation in the economy.

The Labor Department reported last Thursday that its Consumer Price Index increased 0.3% last month as food prices rose for a fourth consecutive month and the cost of gasoline surged.

That was the biggest rise since June last year and added to March's 0.2% rise.

In the 12 months through April, consumer prices rose 2.0% after gaining 1.5% in March. That was the biggest increase since July last year and in part reflected prices coming off last year's low base when energy costs decreased.

Economists polled by Reuters had forecast the CPI increasing 0.3% from March and gaining 2.0% from a year ago.

Stripping out food and energy prices, the so-called core CPI rose 0.2% after advancing by the same margin in March.

In the 12 months through April, the core CPI increased 1.8%. That was the biggest gain since August last year and followed a 1.7% rise in March.

Economists had forecast the core CPI rising only 0.1% from March and 1.7% from a year-ago.

The Federal Reserve targets 2% inflation and it tracks an index that is running even lower than the CPI. Policymakers worry that inflation is running too low, but the steady increase in prices should ease those concerns.

A report on Wednesday showed a strong rise in producer prices in April, with increases spread from goods to services, leaving economists to anticipate gains in consumer inflation in the months ahead.

Food prices rose 0.4% in April, rising by the same margin for a third consecutive month. A drought in the West pushed up prices for meat, dairy, fruit and vegetables. Poultry and fish prices also rose as did the cost of eggs.

Gasoline prices rose 2.3%, advancing for the first time since December. That rise offset a 2.6% plunge in electricity prices, which was the largest drop since 1986.

Within the core CPI, shelter costs increased 0.2%, slowing from the prior month's 0.3% rise. There were also increases in medical care costs, used cars and trucks prices and airline fares.

Source: Reuters


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