Highlights:
- Manufacturing sales bounced-back 1.4% in May after a 1.1% drop in in April — despite further transitory weakness in some sectors (petroleum and coal and autos)
- Volume sales increased 0.9% with details suggesting the manufacturing component of GDP increased about half a percent in May to build on the 0.8% rise in April.
- The inventory-to-sales ratio ticked lower after hitting a post-recession high in April and unfilled orders rose solidly for a second consecutive month.
Our Take:
Manufacturing sales bounced back 1.4% in May after a 1.1% drop in April. Underlying details look solid with the increase in May sales despite continued ’transitory’ weakness in some sectors. The rebound was driven largely by stronger shipments of machinery and equipment and chemical products. Petroleum and coal sales dipped lower again as the temporary maintenance shutdowns that contributed to an outsized decline in April extended through May. Early data suggest those should largely reverse in June. A big 6.6% drop in nominal auto sales also will likely reverse in coming months. Statistics Canada noted in the May international trade data that motor vehicle exports were temporarily impacted by a disruption in the supply of parts from the U.S. Inventories were little changed although are still elevated even with a tick lower in the inventory-to-sales ratio from a post-2008/09 recession high in April. Unfilled orders also surged higher once again, though, rising 3.5% in nominal terms May. Controlling for changes in prices, unfilled orders were up a solid 7.3% from a year ago suggesting that some of the recent inventory build is probably wanted.
Overall sale volumes were up 0.9% controlling for price changes, with details consistent with the manufacturing sector making a solid contribution to overall GDP growth in May for a second consecutive month. Although key reports on retail and wholesale trade are still to come, it looks like GDP probably increased again in May after inching up 0.1% in April. The data continues to track a bounce-back in Q2 GDP growth to a 2%+ rate from the 1.3% Q1 Gain.
