- Nominal sales declined 1.2% in June
- Controlling for price changes, sale volumes fell 0.2%
- Data remains consistent with softer US industrial activity spilling over to Canada
Canada’s June manufacturing sales were on the soft side, declining 1.2% in total. But perhaps not quite as soft as feared given an earlier-reported sharp drop in exports for June. And most of the headline manufacturing sales decline was due to a drop in prices, including a big 5% drop in petroleum and coal prices. The 0.2% dip in headline sales once controlling for price changes followed a 1.7% jump in May. Overall in Q2, manufacturing sale volumes increased 7.3% (at an annualized rate) from Q1 and 2.9% from a year ago. We are still tracking a ~3% increase in overall Q2 GDP.
Still, there were signs that the somewhat surprising outperformance of Canada’s manufacturing sector relative to the United States is easing. The US-China trade war has dented output and sentiment among US manufacturers, and tight integration of cross-border production chains means some of that softness will spill over to Canada. A pullback in June manufacturing inventories means that production in the sector was softer in the month than sales implied and both unfilled and new orders ticked lower in June. Sharply lower interest rates, also a consequence of the US-led trade war, mean household spending headwinds might not be as stiff as previously expected. But we continue to expect manufacturing activity will be softer over the second half of 2019 than it was over the first.
