Canadian manufacturing sales posted another strong month in June, jumping 1.1% following last month’s upwardly revised 1.5% increase (previously reported as 1.4%). This was a touch higher than market expectations for a 1% uptick. After accounting for price changes, volumes were up a decent 0.7%.
Nondurable goods led the increase, moving up 1.9% (1.6% in volume terms), with petroleum and coal products surging 15.9% (also 15.9% in volume terms) after the impacts of temporary shutdowns in April dissipated and refineries reported surges in capacity utilization.
Durable goods posted a mixed performance, increasing 0.5% on the month, but declining 0.25% in real terms. Within durables, autos posted a rebound, as expected, with motor vehicle sales increasing 2.8%. Performance in the overall transportation equipment sector (-0.2%), however, was pulled down by decreases in aerospace products and parts (-5.3%). Fabricated metals also showed healthy increases of 3% on the month.
Primary metals manufacturing fell 0.3% in June, perhaps indicating early signs of steel and aluminum tariffs affecting sales in this category.
Regionally, Quebec and Alberta led manufacturing sales growth, with the provinces’ sales up 3.8% and 3.7% in June, respectively. Manufacturing sales also improved in three other provinces, including Ontario (up 0.5%), British Columbia (up 1.7%), and New Brunswick (up 1.6%). Saskatchewan posted the most disappointing performance, with sales falling 11.1% due to declines in chemical products and pesticide sales. Sales were also down in Nova Scotia (-8.2%), Prince Edward Island (-3.7%), Manitoba (-2.3%), and Newfoundland and Labrador (-8.1%).
Inventories continued their upward trend, increasing 0.5%, but sales pushed the inventory to sales ratio lower to 1.41. Forward looking indicators were mixed, with new orders down 1.8% and unfilled orders increasing 1.7%.
Key Implications
Today’s report closes off a solid Q2 on a strong note. Manufacturing growth, while led by rebounding petroleum and coal products, appears healthy in other sectors as well, including fabricated metals and autos. This was further boosted modestly by an upward revision to the previous month’s performance.
This release on its own is unlikely to change any views. Nevertheless, it adds further credence to the previously upwardly revised Q2 tracking and solidifies expectation for an October rate hike.
Looking ahead, this lends a solid handoff to the third quarter. It is important to note, however, that transitory factors in this month’s performance (especially the surge in petroleum and coal products sales), will not be repeated. Moreover, mixed signs in forward looking indicators may indicate some deceleration in momentum heading into the upcoming quarter.
