Highlights:
- Manufacturing sales rose 0.9% in July — 1.0% excluding the impact of prices
- Looking through monthly volatility, overall sale volumes were still up 4.4% from a year ago reflecting relatively broadly-based gains.
- The details of the monthly sales data are consistent with an increase in manufacturing output (i.e. the manufacturing component of monthly GDP) of about 0.8% in July. We, however, expect a large transitory shutdown in the oil sands will prevent an overall GDP increase in the month.
Our Take:
Nominal manufacturing sales rose 0.9% in July, and a slightly stronger 1.0% excluding the impact of prices. The data is volatile on a month-over-month basis but the volume increase was the third straight and pushed the year-over-year rate of growth up to 4.4%. Higher sales of motor vehicles and parts accounted for about a third of the headline volumes month-over-month gain with activity continuing to strengthen after transitory factory shutdowns caused declines in May. A big jump in the often-volatile railroad stock component also contributed to a 2.9% jump in transportation sale volumes and chemical sale volumes bounced back 5.0% after falling 7.6% in June.
Concerns about potential trade disruptions with the U.S. remain but, for now, the Canadian manufacturing sector seems to be doing a little better. That is less surprising given a significant pickup in growth in the U.S. industrial sector, which remains a key customer for Canadian manufacturers. We expect a big transitory drop in oil sands output related to a temporary production disruption will prevent an increase in overall GDP in July but that weakness will reverse in coming months. Absent a more fundamental shock to the economy, the broader underlying economic backdrop still looks firm and strong enough to warrant further gradual Bank of Canada interest rate hikes.
