Following a pullback in October, Canadian manufacturing sales rebounded a robust 3.4% in November. In real terms, sales volumes were up 2.5% during the month.
The bulk of the gain stemmed from the motor vehicle assembly (+14.2%) and motor vehicle parts (+11.3%). In real terms motor-vehicle assembly volumes were up 14.7% in the month.
A rebound in chemical industry sales also contributed to the strength of November’s report. Sales were up 5.9% (5.0% in volumes terms), following a 2.7% decline (3.7% real) in October.
Regionally, sales were up in all provinces except Manitoba (-1.0%). Ontario recorded a 5.8% gain due in large part to the auto industry. Growth was positive, but slowed in Western provinces following a strong performance the month prior.
The inventory-to-sales ratio fell to 1.36 (from 1.39 previously) as the robust sales growth outpaced a more modest inventory build-up. The forward-looking components of the report were somewhat soft, with both unfilled and new orders declining on the month (-0.9% and -1.8% respectively). The declines were largely the result of the aerospace industry.
Key Implications
The strength in manufacturing sales and the rebound in the auto sector is encouraging following the setback in October. Economic growth in the fourth quarter is likely to come in relatively close to the Bank of Canada’s expectation for 2.5% with some upside possible given this morning’s strong number.
With November’s strength largely reflecting a reversal of earlier production interruptions, the path forward remains somewhat unclear. Healthy job gains, rising incomes, and a strong outlook south of the border all bode well for manufacturers, but NAFTA uncertainty continues to hang over the outlook.
Indeed, economy watchers remain attuned to ongoing NAFTA negotiations, which continue next week in Montreal. President Trump has continued to talk tough, threatening to pull out of the agreement. The Bank of Canada has cited uncertainty around the outcome as a key downside risk to the outlook and we second this view.
