Highlights:
- Headline manufacturing sales dipped 0.1% in October but volumes were up 0.2% despite a pullback in the volatile aircraft component and — accounting for an inventory build — production looked solid.
- Year-over-year sale volumes were up 3.8%.
- Underlying details are consistent with our assumption that overall GDP increased 0.2% in October following the 0.1% dip in September.
Our Take:
The 0.1% dip in headline nominal sales was in part due to lower prices, particularly for wood products. Excluding the impact of prices, the volume of sales rose 0.2% despite a 6% pullback in the often-volatile aerospace component. Along with a build in inventories, manufacturing output (as opposed to headline sales) appears to have increased more than half a percent in October — consistent with what we expect will be a 0.2% bounce-back in overall GDP in the month following a surprisingly soft 0.1% dip in September. The build in inventories in October does not appear to have been ‘unwanted’. New order volumes were up 2.8% from September in October, and up 5.2% from a year ago.
Concerns about the potential impact of lower oil prices on activity in the oil & gas sector remain and we continue to expect slower growth in Q4/18 — in part because of a transitory disruptions tied to the Canada Post strike. Equity markets have been volatile and slower household spending and debt growth have arguably reduced the urgency for further interest rate hikes in the near-term. At the same time, as reiterated by Governor Poloz in media comments yesterday, the economy still looks like it’s running around its capacity limits, the economic data to-date has held up relatively well compared to financial market data, and interest rates are still very low from a historical perspective. Although a central bank rate hike in January has become much less likely over the last couple of months, we continue to expect interest rates will ultimately continue to drift gradually higher in 2019.
