Highlights:
- The nominal value of manufacturing sales rose a stronger-than-expected 0.5% that built further onto the 1.4% increase in August that was revised down slightly from the previously reported 1.6% gain.
- The overall increase was helped by a 10.3% increase in the petroleum and coal component along with a 1.9% gain in machinery that more than offset a 0.7% drop in the transportation equipment component.
Our Take:
Though today’s report showed a stronger-than-expected rise in manufacturing sales, it also indicated that once again part of the demand was met from existing stocks rather than new production with inventories dropping 0.7% after the 0.2% decline in August. As a result, we are assuming that the manufacturing component of September GDP will rise a more moderate 0.2%. However, this increase along with similar-sized gains among most services categories will provide an offset to expected flat mining and utilities components that is expected to result in overall monthly GDP returning to positive growth in September rising 0.1% after August’s disappointing 0.1% drop. Beyond September a rebuilding of inventories is expected to help keep activity rising. Sustained positive growth is expected to eventually return the Bank of Canada to tightening mode though not until Q2 of next year.
