Canada’s manufacturing sales fell 1.5% (m/m) in July, slightly worse than Statistics Canada’s flash estimate of -1.2%. The picture was less encouraging after accounting for price effects, with manufacturing shipment volumes down 1.7% on the month.
The decline in manufacturing shipments spanned 12 of the 21 industries. Wood products (-21.8%), aerospace products and parts (-19%), petroleum and coal products (-2.3%), and miscellaneous products (-12.1%) were the main drivers of the contraction. Sales of motor vehicles (+13.5%), motor vehicle parts (+7.6%), primary metals (+3.9%), and plastics and rubber products (+3.3%) provided some offset.
Forward looking indicators were mixed, with new orders down 2.6% and unfilled orders up 0.6%. Inventories increased 2.6%, lifting the inventory-to-sales ratio to 1.58 (from 1.51 in June).
Key Implications
It’s one step forward, two step backwards for Canada’s manufacturing sales. Just as auto sales are starting to show signs of life, other industries are taking a bite out of growth. July’s release adds to the list of recent indicators pointing to a soft patch in Canada’s economy early on in the summer, and adds credence to Statistics Canada’s expectations for a 0.4% decline in real GDP in July.
It could get worse before it gets better for the manufacturing sector. August’s Labour Force Survey data revealed declines in employment and hours worked, a negative signal for output in the industry during the month. But it’s not all gloom. PMI indicators suggest that sentiment in the industry is still solid in both in Canada and the United States. The outlook, however, remains clouded by supply chain disruptions. Should these constraints continue to gradually dissipate, a normalization in auto production (which remains far detached from pre-pandemic levels) could provide a decent lift to overall manufacturing output in the coming quarters.
