- Canada’s manufacturing sales declined 9.2% (m/m) in February. This was the largest single-month decline since the Global Financial Crisis.
- After stripping out price impacts, the picture was still remarkably weak, with manufacturing shipment volumes down 8.3%.
- Sales were down in 17 of the 21 major industries. The steep headline decline was predominantly driven by sizeable drops in transportation equipment (-26.5%) and petroleum product (-32.2%) sales. This was largely pre-written given the announced shutdowns in auto plants and the expectation of reduced refinery runs. Providing some offset were the food (+8.2%), beverages (+6.7%), and paper product (+8.4%) industries.
- Inventories increased 0.1%, with a sharp increase in the inventory-sales ratio to 1.72 (from 1.56 in February). Forward-looking indicators were negative, with unfilled orders down 0.4% and new orders down 11.3%.
- Regionally, sales were down in 8 of the 10 provinces. Ontario (-14.3%) and Quebec (-4.1%) led the overall increase. Sales were also notably weak in Alberta (-6.6%), New Brunswick (-24%), Saskatchewan (-8.7%), and Newfoundland and Labrador (-19.4%). Manitoba (8.2%) and Nova Scotia (+2.9%) were the two provinces that saw sales increase in March.
Key Implications
- March’s decline came in largely as expected, with broad-based weakness across all major subsectors and provinces. Further pain is still expected in April, as the full impacts of mandated shutdowns and containment efforts appear in the data.
- Indeed, Markit’s PMI release for Canada showed the sharpest decline in manufacturing sentiment since the survey began in 2010, and now sits well into contractionary territory (at 33). This was further reaffirmed in April’s employment report, which showed a 15.7% (m/m) drop in manufacturing sector employment and a 23.9% drop in hours worked.
- The easing of restrictions, both across provinces and globally, may provide a modest lift to domestic shipments and exports in May. However, the road to recovery in the sector remains cloudy. In a recent note, we highlighted the different paths of recovery expected across different industries in Canada into 2021. Most manufacturing activity is expected to see only a gradual “U-shaped” recovery, as the weak global macroeconomic backdrop, heightened uncertainty, and lingering weakness in the energy sector continue to weigh on shipments. Only a few manufacturing industries (food, chemical products) are expected to outperform or see a quick “V- shaped” recovery.
