Canada Factory and Wholesale Sales Rebound After Tariff Impact

Canadian Manufacturing and Wholesale Sales Show Signs of Recovery

Canadian factories experienced the largest increase in sales in nearly two years during July, signaling a potential recovery in manufacturing activity. This growth comes after a period of challenges caused by shifts in U.S. trade policy and the imposition of tariffs. The improvement in sales was accompanied by positive developments in the wholesale sector, offering a hopeful outlook for the broader economy following a significant contraction in the second quarter.

According to Statistics Canada, manufacturing sales in July surged by 2.5% compared to the previous month, reaching a seasonally adjusted total of C$70.32 billion (approximately $50.8 billion). This figure exceeded the initial estimate of a 1.8% increase and marked the strongest monthly gain since August 2023. The rise followed a modest 0.3% increase in June, which was the first growth in five months. However, when compared to the same period last year, factory sales were still down by 1.7%.

In the wholesale sector, sales also saw an upward trend, rising by 1.2% in July to reach C$86.03 billion. This was the third consecutive month of growth, although it was slightly below the data agency’s revised estimate of a 1.3% increase. June’s figures were also adjusted upward to reflect a 1.0% rise in sales.

These economic indicators come ahead of the Bank of Canada’s upcoming interest rate decision. Analysts expect the central bank to resume lowering rates after maintaining them steady since March. However, inflation data scheduled for release the following day is expected to play a crucial role in shaping the decision.

Trade-Exposed Sectors Face Ongoing Challenges

Canada’s trade-exposed sectors have been significantly impacted by the fluctuating U.S. tariffs under the Trump administration. Despite this, there are signs that stability is returning, and recent surveys suggest improving confidence among businesses and households, albeit from historically low levels. The S&P Global Canada Manufacturing Purchasing Managers Index indicates that the sector has been in contraction for seven consecutive months through August, though the pace of decline has eased.

Thomas Ryan, North America economist at Capital Economics, noted that the July increases in manufacturing and wholesale sales represent early signs of recovery in sectors most affected by U.S. tariffs.

Key Drivers of Growth

The rise in factory sales in July was largely driven by the transportation equipment sector, which saw a rebound after four months of declines. This was attributed to increased sales of motor vehicles and parts. Although Ontario’s automotive industry typically experiences planned temporary shutdowns in July, the impact of these closures was less severe this year due to ongoing production slowdowns linked to U.S. tariffs on auto imports.

Petroleum sales also saw strong growth, with a 6.2% increase in July. This followed a ramp-up in refinery production after maintenance shutdowns in April and May. However, despite the monthly increase, petroleum and coal sales were still down by 12.7% compared to the same period last year.

Within the manufacturing sector, unfilled orders edged down by 0.1%, while inventories rose by 0.8% from June. Higher inventory levels in machinery and petroleum products were partially offset by a decline in the miscellaneous manufacturing sector. New orders for manufacturers fell by 2.2% in July, marking a 1.7% decrease compared to the previous year.

For wholesalers, sales in July increased by 1.2% to C$86.03 billion, continuing a three-month streak of growth. Compared to the same period last year, sales were up 4.3%, though the volume increase was more modest at 0.8%. The growth was fueled by higher sales of motor vehicles and parts, as well as increased trade in building materials and supplies.

Including sales by petroleum, oilseed, and grain merchants, overall wholesale sales reached C$119.17 billion in July, reflecting a 1.3% increase from the previous month.

Wholesale inventories also rose for the third consecutive month, increasing by 0.6% between June and July. The largest gains were seen in food, beverage, and tobacco, followed by machinery and equipment.

Economic Outlook and Government Response

Canada’s economy contracted more than anticipated in the second quarter, with gross domestic product falling by 1.6% on an annualized basis. This followed downward revisions to the first-quarter growth, which had initially been reported at 2%. During the April-June period, industry-level GDP declined by 0.1% each month, but a flash estimate for July suggested a modest 0.1% growth.

In response to the challenges posed by U.S. tariffs, Prime Minister Justin Trudeau’s Liberal government has introduced several measures to support affected industries. These include a strategic fund and a Buy Canadian policy. Unlike other Group of Seven nations, Canada has not yet secured a new trade deal with the U.S., though the majority of its exports continue to enter the U.S. duty-free under the existing North American trade agreement, which is set to be renegotiated.