Canadian manufacturing sales roared back to life in February, up 1.9% month-on-month after a (downwardly revised) 1.3% decline in January. The gain was entirely down to volumes, which rose an impressive 2.0% in February.
Unsurprisingly, durable goods producers led the way (+3.4%, or 3.3% in volume terms), with a recovery in motor vehicle sales (+8.9%; volumes +9.3%) leading the way. This came after a roughly 8% drop January. The volatile aerospace product category also performed well, with sales up 4.2% in February (volumes: 2.5%). Rounding out the top performers was primary metals, up 4.8% on the month (volumes: 4.6%). Non-durable goods manufacturers reported a mixed month, with overall sales up just 0.3%, (volumes up 0.4%).
As one would expect, given the industry mix, Ontario led sales growth, up 3.0% in February. Quebec was not far behind, gaining 2.2%. Alberta also reported a sales gain (+0.3%), while B.C. saw a 1.3% pullback, marking a fourth straight monthly decline in manufacturing sales.
Manufacturing inventories hit a record high at $77.5 billion after climbing for a fifth straight month. Statistics Canada attributed the gain to the transportation equipment sector, as well as primary and fabricated metals. Despite this climb, sales were strong enough to bring the inventory-to-sales ratio down a tick to 1.39 (from 1.40).
Indicators of future sales were robust. Unfilled orders rose 3.0% in February on strength in aerospace (volumes: +2.1%), while new orders were up 5.0% (1.4% in volume terms – the third straight month of improvement).
Key Implications
As expected, January’s softness gave way to a rebound in February, with manufacturing sales volumes up a respectable 1.9% on the month. The resolution of earlier disruptions in the auto sector helped the gain, but solid performances in other durable-goods categories helped generate a relatively broad-based gain, as 14 of 21 industries, or roughly 70% of the manufacturing sector saw sales rise in February. It was also encouraging to see continued improvement in order books.
Today’s report may not be enough to materially alter our view of first quarter growth (current tracking: 1.6%), but it does help make the case that a stepped up pace of growth in the second quarter is likely. Indeed, the solid forward-looking components of the report and a healthy U.S. outlook both bode well for the manufacturing sector as the year progresses.
With February’s recovery widely anticipated, it is unlikely to alter the Bank of Canada’s thinking going into tomorrow’s interest rate decision. Caution will likely rule the day, but with a second quarter growth surge beginning to take shape (helped as well by a still optimistic business outlook) and core inflation sitting at the 2% target, the Bank will likely set the stage for further rate hikes.
