- Canadian manufacturing sales fell 1.3% (m/m) in July, following a downwardly revised 1.4% drop in June (previously reported as -1.2%). This came in lower than consensus expectations for a 0.1% decline. After stripping out price impacts, the picture was even more disappointing, with manufacturing volumes down 1.6%.
- Sales fell in 11 out of the 21 industries, with the drop mostly concentrated in durable goods (-2.9%). Indeed, primary metals (-7.3%) and transportation equipment (-3.4%) contributed the most to the decline. Within the latter category, the culprits were lower motor vehicle sales (-4.7%) and a 26.7% decline in the volatile railroad rolling stock category. Shipments were also weak in fabricated metal products (-3.2%) and computer and electronic products (-6%). Statistics Canada cited the drop in motor vehicle sales as being partially attributable to “an extended shutdown at a major assembly plant.”
- On the flip side, non-durable goods were up 0.6% on the month, with food shipments (+1.3%) leading the way.
- Regionally, shipments fell in 5 of the 10 provinces. Ontario (-1.5%), Alberta (-2.8%), Quebec (-1.2%), and British Columbia (-2.2%) contributed the most to the drop. In contrast, shipments were up a solid 5.4% in Nova Scotia.
- Inventories increased 0.3% on the month, leaving the inventory-to-sales ratio at an elevated 1.54. Forward looking indicators were negative, with new orders down 1.6% and unfilled orders 1.4% lower.
Key Implications
- This was a disappointing print, but the outsized drop in volumes should be interpreted with caution. Some payback was to be expected after surges in June (primary metals), and there are also some temporary factors at play (maintenance in motor vehicle production plants). Nevertheless, manufacturing sales and economic activity in general look set to experience a slowdown in Q3 following a strong Q2.
- Looking ahead, the outlook for the manufacturing sector remains clouded by trade tensions and softening global growth. Indeed, manufacturing remains in contractionary territory in the Euro Area and particularly subdued in Asia. South of the border, the ISM manufacturing index recently fell below 50 for the first time in three years. If this trend continues, downside risk will linger for Canadian manufacturers and exporters. The recent dovish tilt by most central banks may provide a modest offset, but the sector remains susceptible to trade uncertainty and lackluster business confidence.
