It was another solid month for Canadian manufacturers, with sales up 1.4% month-on-month in March after a significantly-upwardly-revised gain of 2.7% in February (initially reported as 1.9%). Much of the gain came through price growth, but volumes were still up a respectable 0.6%.
Durable goods manufacturers led the way again, posting a 2.2% sales gain, as solid climb in the aerospace sector (+10.6%; volumes +3.6%) offset a pull-back in motor vehicle sales (-2.0%, with a similar change in volumes). Performances were generally strong across the other durable sectors, with the notable exception of machinery (-1.7%; volumes). Among the non-durable industries, mixed performances were observed, with overall sales up 0.4% ( in volume terms).
With aerospace leading the way, Quebec contributed the most to March’s gains, up 2.9% month-on-month. B.C. and Saskatchewan also performed well, up 4.0% and 5.6% respectively.
Inventories reached another record high of $79.2 billion, climbing for a sixth straight month, but sales growth was again strong enough to keep the inventories-to-sales ratio effectively unchanged at 1.39 (from a revised 1.40 in February).
Indicators of future sales were mixed. Unfilled orders rose for a second month, up 1.5%, but new orders fell slightly (–0.7%), albeit after a healthy (an upwardly revised) climb of 7.4% in the month prior.
Key Implications
Another pleasant surprise from the Canadian economy. March’s manufacturing report was chock full of good news, benefitting significantly from currency moves (aerospace in particular, where goods are generally priced in U.S. dollars), but nevertheless turning in a solid climb in volume terms. This should not only provide solid momentum heading into the second quarter of the year, but with decent revisions to previous months in the mix, we see some upside risk to our first quarter growth tracking of 1.7% (Q/Q, at annual rates).
Outside of the resale housing market, and beneath some idiosyncratic shocks early in the year, the Canadian economy continues to perform well. There are obviously some countervailing forces at play, but with solid U.S. demand in the cards, the outlook for Canadian manufacturers remains healthy. What’s more, with factories running near full-tilt despite solid investment through 2017, there is a clear incentive for firms to continue building out their capacity to meet demand. We continue to expect that 2018’s soft start will give way to an above-trend pace of growth through the remainder of the year, supported by continued business investment.
