By Paul Vieira

OTTAWA -- Wholesale sales in Canada dropped unexpectedly in September on weak demand for machinery and equipment, setting the stage for a disappointing ending for the third quarter.

Wholesale sales fell 1.2% on a seasonally-adjusted basis in September to 56.03 billion Canadian dollars ($41.46 billion), Statistics Canada said Monday. That missed expectations by a wide margin, as traders had anticipated a 0.5% gain, according to economists at Royal Bank of Canada, and followed a 0.8% advance in the previous month.

On a 12-month basis, sales rose 2.8%.

In volume terms, September wholesale trade declined by a steeper 1.5%.

The disappointing result on wholesale trade marks the first month-over-month decline in sales since March, and suggests the Canadian economy lost speed as the third quarter came to a close. Canadian growth surged in July as the economy shook off the impact from Alberta wildfires that forced energy producers to curtail or shut down production in the spring. Economists have warned momentum has waned, and the fourth quarter will likely produce subpar growth.

Wholesalers account for the largest portion of the services sector, which in turn represents roughly two-thirds of total Canadian gross domestic product. Wholesalers generally act as an intermediary in the distribution of merchandise, and as a result tend to sell goods in large quantities to retailers, businesses and institutional clients.

The declines in September were broad-based, with five of the seven sectors recording lower sales.

The machinery and equipment component posted the largest decline in dollar terms in the month, down 4% to C$10.91 billion.

Sales in the so-called miscellaneous sector dropped 3.1% to C$7.01 billion, led by a decrease in demand for agricultural supplies.

Offsetting the declines was the motor-vehicle and parts sector. Auto-sector sales rose 0.7% to C$11.11 billion, after recording a 0.2% decrease in the previous month. Excluding motor vehicles and parts, wholesale sales fell 1.7% in September.

Inventories climbed 0.2% to C$72.15 billion, while the inventory-to-sales ratio -- which measures the time in months required to exhaust stockpiles if sales remain at present levels -- climbed to 1.29 in September from the previous month's 1.27 reading.

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

November 21, 2016 10:03 ET (15:03 GMT)

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