Highlights:
- Nominal manufacturing sales jumped 1.1% in the month helped by strong gains in petroleum and coal (8.9%) and primary metal (3.8%) that more than offset the motor vehicle component dropping 3.7%.
- Sale volumes increased 0.5% reflecting non-durables rising 1.9% that more than offset a 0.8% drop in the durables component.
- Nominal inventories rose an equally strong 0.9% which contributed to the inventory-to-sales ratio remaining unchanged at 1.35.
- The data is indicative of the manufacturing component of GDP being flat in the month as much of the strength in petroleum and coal manufacturing sales gets discounted on a value added basis. The data remains consistent with our expectation that overall April GDP will remain unchanged in the month following the 0.5% jump in March.
Our Take:
The volume of April manufacturing sales increased at a stronger-than-expected pace both in the month (0.5%) and over the year (1.9%). The annual increase has been helped by the volume of machinery orders surging 13.5% over the past year. It follows indications of a rebound in imports of machinery and equipment in April and solid momentum in engineering employment through March. The burst in overall GDP growth of 3.7% in the first quarter was helped by business investment surging 10.3%. Today’s manufacturing report, along with the import and employment data, bodes well for second quarter business investment to build further onto the Q1 surge. We are currently forecasting a 3 1/2% increase though with the risks on the upside. This continued strength reinforces the Bank of Canada’s recent comments about economic growth becoming more broadly based. Our expectation is that this broad-based strength will continue through the remainder of this year and that will eventually return the Bank of Canada to tightening mode. In fact, if upcoming data continues to surprise on the upside, there is the clear risk that this tightening could be advanced relative to our current forecast of rate hikes commencing in the first half of 2018.
