- Canadian manufacturing sales increased 0.8% (m/m) in August, following a 1.3% drop in July (no major revisions were made to the headline number). This came in close to consensus expectations for a 0.7% increase. After stripping out price impacts, the picture was still encouraging, with manufacturing volumes up 0.6%.
- Sales advanced in 11 of the 21 industries. The increase was mostly led by durable goods (+1.6%), with transportation equipment (+2.8%) and fabricated metal products (+3.6%) contributing the most to the increase. The strength seen in the transportation equipment category was relatively broad-based across the sub-categories, with the increases in the motor vehicles category (+2.6%) helped by a production ramp-up after earlier shutdowns. Sales were weak in the machinery (-1.6%) and furniture (-2.8%) sub-sectors.
- On the other hand, sales of non-durable goods fell 0.1%, driven by a decline in petroleum and coal products (-1.7%). Providing some offset in the non-durables category were higher sales of plastic and rubber products (2.8%).
- Regionally, manufacturing sales were up in 7 of the 10 provinces. Quebec (+1.6%), Ontario (+0.4%), and Saskatchewan (+7%) led the way. In contrast, sales declined the most in British Columbia (-1.4%). Alberta’s manufacturing sales were virtually flat on the month (-0.1%).
- Inventories were up 0.5%, leaving the inventory-to-sales ratio roughly unchanged at a still-elevated 1.54. Forward looking indicators were encouraging, with new orders up 6.1% on strength in the aerospace industry, and unfilled orders up 0.8%.
Key Implications
- Following two months of declines, this was certainly a healthy report, with decent volume increases, broad-based regional strength, and encouraging forward looking indicators. The fly in the ointment remains the still-elevated inventory-to-sales ratio. All told, today’s data leaves us tracking a 1.4% pace of third quarter growth, modestly above our earlier expectations.
- However, one month of data is just one month of data. With the U.S. economy experiencing a second straight month of contraction in its ISM manufacturing Index, manufacturing sentiment in contractionary territory in other major economies, and lingering global trade tensions still in play, we remain cautious on the outlook for Canadian manufacturers, especially those in export-intensive sub-sectors.
