Highlights:
- Nominal manufacturing sales jumped 1.0% but largely reflecting a (broadly based) increase in prices.
- Sale volumes increased 0.2% despite a sharp 11% pullback in the volatile aerospace component.
- Nominal inventories rose 1.2% to reach a record high in March but the inventory-to-sales ratio held steady at a still relatively modest level by historical comparison.
Our Take:
Higher prices accounted for the bulk of the 1% monthly manufacturing sales gain in March (reflecting widespread price gains outside of an expected pull-back in petroleum prices) but volumes were still up 0.2% that, combined with earlier strength, left the measure up 7.9% (at an annualized rate) in Q1/17, marking the strongest quarterly increase since Q2/14. The underlying details are pointing to a slightly larger gain in the manufacturing component of monthly GDP in March to leave data to-date still broadly consistent with our forecast that overall GDP jumped 3.8% in Q1 to build on strong gains in each of the two prior quarters. One of the encouraging details in recent manufacturing reports has been stronger machinery sale volumes, which have now increased in four of the last five months and were up a whopping 17.4% (annualized rate) in Q1. That increase coincided with an earlier reported jump in machinery and equipment imports and stronger engineering construction activity with the data together making it look increasingly likely that business investment posted a sizeable increase in the quarter after steady declines over the last two years. The monthly/quarterly data is often volatile but U.S. manufacturing activity – which itself is a large customer for Canadian manufactured output – has also shown signs of life and survey based measures (eg. the Markit Canada Manufacturing PMI and CFIB’s Business Barometer) of Canadian manufacturing activity have also generally improved in 2017 to-date to suggest at least part of recent improvement reflects a stronger fundamental growth path that can be sustained going forward.
