Highlights:
- Manufacturing shipments rose 1.1% in May, the third consecutive monthly increase. April’s 0.4% gain was revised down from a previously-reported 1.1% increase.
- The gain was widespread with higher sales in 16 of 21 sub-industries. The transportation sector and chemical manufacturing posted the largest contributions.
- Machinery sales posted a fifth consecutive monthly increase and were up 22% from a year ago. The increase reflects both stronger exports and improving M&E investment at home.
- Price movements were not a factor on net as sales volumes also rose 1.1% in May.
- With some drawdown in inventories, we don’t expect the entire 1.1% gain in sales volumes will be captured in May’s manufacturing GDP that more closely reflects new production. We look for a slightly smaller 1/2% increase on a GDP basis.
Our Take:
A resurgent goods-producing sector is part of the broadening growth picture that was a factor in the Bank of Canada raising their trend-setting interest rate a week ago. While a rebound in goods production has been led by the energy mining industry, stronger manufacturing activity has also helped boost Canada’s GDP growth. Today’s manufacturing report points to that trend continuing with shipment volumes rising at their fastest year-over-year pace since the end of 2014. We look for a 1/2% gain in manufacturing GDP to add to May’s output figures, though that increase is expected to be swamped by a drag from the construction sector reflecting a week-long strike in Quebec. Even with overall activity expected to be flat in the month, a solid trend to start Q2 supports our forecast for a 2.7% annualized increase in GDP in the quarter.
