- Canadian manufacturing sales declined 0.2% (m/m) in September, following a 0.8% increase in August (no revisions were made to the headline number). This was slightly better than consensus expectations for a 0.5% drop. After stripping out price impacts, the picture was worse, with manufacturing volumes down 0.7%.
- Sales fell in 10 of the 21 industries. The decline was led by non-durable goods (-1%), driven by a drop in petroleum and coal product shipments (-1.9%). Statistics Canada attributed the reduced volumes in this category to partial maintenance shutdowns at some refineries. Weakness was also seen in chemical manufacturing shipments (-1.4%).
- On the plus side, shipments of non-durable goods were up 0.4% on the month. Machinery sales were particularly strong (+5.5%), but weaker sales of motor vehicle parts (-4.3%) provided an offset and caused an overall drop in the transportation equipment sector (-0.7%). Statistics Canada reported that production in some motor vehicle parts plants in Canada was impacted by the UAW strike south of the border.
- Regionally, manufacturing sales were down in seven of the 10 provinces. Alberta (-3.2%) led the overall decline, but weakness in Quebec (-0.5%), Saskatchewan (-4.6%), and Manitoba (-4%) also contributed to the overall drop. On the other hand, British Columbia (+3.7%) and New Brunswick (+9.9%) saw a significant climb in sales. Sales in Ontario were almost flat on the month (-0.1%).
- Inventories were down 0.8%, but weak sales left the inventory-to-sales ratio at a still-elevated 1.53 (down from 1.54 in August). Forward looking indicators were disappointing, with new orders down 2.7% and unfilled orders also down 0.6%.
Key Implications
- September’s manufacturing sales report was disappointing, and leaves the third quarter manufacturing volumes down 1%. While some of the volumes decline can be attributed to transitory factors (refinery maintenance and the UAW strike), weakness was broad-based across industries and provinces. The still-elevated inventory to shipments ratio and soft forward-looking indicators suggest that further weakness may still be in the pipeline.
- All told, today’s data leaves our third quarter GDP tracking closer to the 1% mark, slightly below the Bank of Canada’s 1.3%.
