- Canadian manufacturing sales fell 0.6% (m/m) in November, a third straight monthly decline. This follows an upwardly revised 0.2% drop in October (previously reported as -0.7%), and came close to consensus expectations for a 0.5% decline. After stripping out price impacts, the picture was weaker, with November manufacturing volumes down 0.8%.
- Sales fell in 11 of the 21 major industries. Weaknesses were widespread across both non-durable (-1.3%) and durable (0%) goods. Primary metals (-11.7%) fell the most, with Statistics Canada attributing the decline partly to transportation disruptions from the (since resolved) rail strike. Notable weakness was also seen in shipments of chemicals (-3.6%), food (-1.7%), and to a lesser extent, petroleum and coal products (-1.3%).
- The main offset to this broad-based weakness was a solid rebound in transportation equipment sales (+4.2%). This was a result of strong aerospace product shipments (+8.5%) and a rebound in motor vehicle parts shipments (+8.8%) following the UAW strike. Sales of fabricated metals (+4.7%) were also strong.
- Weakness was also widespread regionally, with sales were down in 8 of the 10 provinces. Quebec (-1.6%), Alberta (-2.6%), New Brunswick (-8.3%), and Manitoba (-3.1%) led the overall decline. Decent sales growth in Ontario (+1.4%) provided some offset.
- Inventories increased 0.5% (m/m). This, combined with weak sales pushed the inventory-to-sales ratio to 1.54 (up from 1.52 in October). Forward looking indicators were decent, with new orders up 1.9% and unfilled orders up 0.1%.
Key Implications
- Some of the persistent weakness in manufacturing seen of late was pre-written and came as a result of transitory factors disrupting shipments (UAW strike, CN Rail strike). However, moving past those impacts reveals a notably weakening trend spanning multiple sectors and regions. This is consistent with a manufacturing sector that has been facing a downturn globally. Indeed, the latest reading of manufacturing sentiment south of the border (for December) was still in contractionary territory.
- In terms of growth implications for the fourth quarter, today’s print was only modestly weaker than expectations, with some of the weakness offset by upward revisions to October’s data. This leaves our tracking unchanged at 0.5% for the fourth quarter, well below the Bank of Canada’s 1.3%.
- The manufacturing sector continues to face headwinds given a still-uncertain global macroeconomic backdrop. Although the recent Phase One trade agreement bodes well for sentiment, further progress on trade uncertainty and a confirmation that the global manufacturing downturn is bottoming out will be needed to provide a meaningful boost to the sector.
