Highlights:
- Manufacturing sales fell 1.4% in nominal terms — and 0.9% excluding price impacts.
- Most of the manufacturing weakness came from lower petroleum & coal sales, both in nominal and volume terms.
- Separately reported wholesale sales declined 1.2% in volume terms. Along with the drop in manufacturing volumes, that sent our monitoring for November GDP growth down to –0.1%.
Our Take:
The manufacturing report wasn’t as bad as the big 1.4% nominal sales drop alone implied. Most of that decline came from a huge 13.8% drop in the petroleum & coal component — about half of which was accounted for by lower prices and the other half at least in part due to ’maintenance and turnaround work’ that will be reversed when production resumes. Excluding the petroleum component, sales were little changed in November — up 0.2% in nominal terms. Still, 13 of 21 industries posted declines. Excluding price impacts, overall manufacturing sales fell 0.9% month-over-month in November, and were up just 0.4% from a year ago. The separately-reported wholesale sales volumes also declined 1.2% in November and the Canada Post strike will temporarily weigh on activity in the month. And softness in the oil & gas sector is only likely to intensify going forward in the wake of lower prices and mandated Alberta oil production cuts in early 2019. Today’s data adds to the evidence that Canadian economic growth will look softer over the next couple of quarters. We are tracking a 0.1% decline in November GDP and just a 1.1% increase in Q4/18 as a whole.
Most of the factors that are expected to weigh on growth over the next several months are temporary. Global oil price benchmarks have edged higher in recent weeks, the discounts on Canadian oil prices have shrunk dramatically from November lows, and Alberta’s oil production cuts will ease once a backlog of inventories has cleared. Labour markets still look solid and, notwithstanding recent market volatility, the U.S. industrial sector is continuing to expand. That bodes well for Canadian manufacturing sales going forward. We still expect a ’data-dependent’ Bank of Canada will ultimately view more gradual rate hikes as appropriate this year — but very likely not until confirmation emerges that the expected slow patch over the next couple of quarters is temporary.
