Highlights:
- Manufacturing sales dropped 1.0% in January to build on a 0.1% dip the prior month.
- The bulk of the weakness came from a big 6.1% drop in sales of motor vehicles and parts — due to ‘atypical’ assembly plant shutdowns – and a 9.5% drop in the volatile aerospace component.
- Ex-transportation products, sales edged up 0.2%
- Overall sale volumes declined by 1.1%
Our Take:
The 1.0% drop in manufacturing sales overall was somewhat larger than we expected though the details make the headline decline look less worrying. Most of the weakness was accounted for by a big 6.1% drop in motor vehicle and parts sales, reportedly due to ‘atypical’ assembly plant shutdowns that should reverse going forward. The often-volatile aerospace component also dropped almost 10%. Excluding transportation products, sales inched up 0.2% — albeit in large part because of a price-led increase in petroleum & coal sales. Sale volumes declined 1.1% overall but were little changed excluding the transportation component.
Manufacturing production was also stronger than sales in January with inventories rising 0.9%. That, of course, could just be borrowing production from future months if sales don’t bounce back. In the near-term, though, it means the manufacturing sector may have actually added positively to GDP growth in January despite the headline sales drop. Canadian economic data has certainly been more mixed recently than a year-ago when the economy was growing at a (unsustainably-strong) 4% clip per quarter. Reports on retail and wholesale trade sales next week will provide further clarification on the pace of early-2018 growth but for now we think the data is still consistent with further, albeit more modest, improvement at a close to 2% rate in Q1 2018.
