Canadian manufacturing sales fell 1.3% in December, following on a 1.7% drop in the month prior (previously reported as -1.4%). This came against expectations for a 0.4% increase. After accounting for price changes, the print was just as disappointing, with volumes down 1.2%.
Non-durable goods, down 3.4%, accounted for more than the headline decline. Petroleum and coal products were the culprit, falling 10.4% (down 5.2% in real terms). Nevertheless, negative performance was seen across other categories. Food sales (-2.3%) and chemicals (-1.8%) also had a notably poor showing that impacted the headline number.
Durable good sales were slightly better, up 0.6% on the month. This was driven by increases in primary metals (+3%) and nonmetallic mineral products manufacturing (+6.1%). Providing a slight negative offset were sales of machinery (-1.8%), and transportation equipment, which fell 0.4% on the back of substantial declines in sales for the volatile ship and boat building (-16.2%, following two months of double-digit gains) and motor vehicle body and trailers (-7.1%).
Regionally, manufacturing sales were down in six provinces. Alberta and Ontario drove the overall decline, with manufacturing sales falling 4% and 0.8%, respectively. Sales also disappointed in Saskatchewan (-6.3%), Manitoba (-4.7%), British Columbia (-3.1%), and New Brunswick (-8.8%). Providing a modest offset were sales in Quebec (+0.5%) and the remaining Atlantic provinces.
Inventories reversed from their decline last month, moving up 0.3%, leaving the inventory-to-sales ratio up at 1.5 – a level last seen in 2009. Forward-looking indicators were mixed, with new orders down 0.8% and unfilled orders up 0.6%.
Key Implications
This was definitely a sour ending to the year for Canadian manufacturers. The decline, while in some sense not very eye-catching given the weakness in the energy sector was largely pre-written, was made worse by the negative revision to the prior month’s data and the broad-based nature of the decline, which spanned 12 of the 21 industries. The conclusion from several recent indicators (for instance, retail sales, wholesale trade) is a reaffirmation of the ongoing moderating growth narrative.
The release leaves our GDP tracking for Q4 at 0.9%, slightly below the Bank of Canada’s assumption in its latest MPR (1.3%).
Again, sub-par manufacturing performance is still expected in the near-term, as Alberta’s production curtailment plan starts to reflect in manufacturing sales volumes during the new year. Combining this with other moderating economic indicators, we expect the Bank of Canada to remain on the sidelines in the near term, especially given that there are no signs of emerging inflationary pressures.
