- Canada’s manufacturing sales declined 2.1% (m/m) in April. This was weaker than Statistics Canada’s flash estimate for the month (-1.1%). The picture was even more disappointing after accounting for price effects, with manufacturing shipment volumes down 3.3% on the month.
- The decline in manufacturing sales was an auto production story, with the global shortage of semiconductor chips still weighing on motor vehicle and motor vehicle parts sales (down 36.5% and 19% on the month, respectively). Statistics Canada noted that the impacts of the shortages intensified in April, with all manufacturers ramping down or stopping production. Excluding the transportation equipment industry, manufacturing sales were up 1.5% on the month. Elsewhere in the industry, sales of petroleum products (-7.1%) fell as a result of temporary refinery maintenance. Strong sales of machinery (14.6%), wood products (6.5%), chemicals (5%), and food (1.1%) provided some offset.
- Forward looking indicators were negative, with new orders down 2.5% and unfilled orders down 0.1%. Inventories increased 0.8%, bringing the inventory-to-sales ratio up to 1.56 (from 1.52 in March).
Key Implications
- April marked another month where supply chain constraints made their impacts felt in Canadian manufacturing output. Manufacturing sales volumes have been moving sideways since the fourth quarter of 2020, partly reflecting these disruptions. Although some plants have restarted production in June, much uncertainty remains for output in the overall auto industry. A full recovery in production may be drawn out over the next few quarters as the impacts of these global shortages and supply chain disruptions linger.
- Zooming out from the disruptions seen in the auto industry, the outlook for manufacturing sales is not all that bad. Sentiment remains high, as signaled by recent PMI releases for Canada. The reopening of provincial economies and strength in Canada’s largest export market (the U.S.) should provide a lift to demand.
