Highlights:
- Nominal manufacturing sales dipped 0.2% in February, above market expectations for a 0.7% decline. The dip followed a downwardly revised 0.1% gain in January but outsized 2.4% (previously 2.1%) and 2.2% increases in December and November, respectively.
- Weakness was concentrated in a 5.3% drop in motor vehicle sales and price-led 5.0% drop in petroleum & coal sales (petroleum & coal volume sales declined a more modest 2.0%). An outsized 27% jump in the volatile aerospace component provided the main offset although machinery shipments also rose an encouraging 3.1%.
- Sale volumes inched up 0.1%
- Inventories increased 1.6% after a 1.1% increase in February. The inventory-to-sales ratio increased but from very depressed levels in January and February.
Our Take:
The modest dip in manufacturing sales in February was somewhat smaller-than-expected, particularly given the series of strong reports in the often-volatile series leading up to February (sales increased an average 1.6% per month October to January) that pointed to risk of a near-term correction and an earlier-reported drop in exports in the month. The February result would have been weaker if not for a 27% jump in the volatile aerospace component (sales declined 1.0% excluding aerospace); however, nominal sales were also restrained by lower prices, particularly for petroleum & coal products. Looking through monthly volatility, strong earlier readings and a 0.1% tick higher in February left sales in volume terms up 10% (at an annualized rate) in Q1 to-date. February sales volumes were up 4.1% from a year ago, marking the fastest annual gain since December 2014. Survey based measures (eg. the Markit Canada Manufacturing PMI and CFIB’s Business Barometer) of manufacturing activity have also generally improved in 2017 to-date to provide further evidence that the sector is on a somewhat firmer footing. The same can broadly be said for the overall economy. While today’s report is in line with our view that GDP was little-changed in February, that would follow three months of outsized gains (averaging 0.5% over the last three months) and leave growth in Q1 as a whole tracking in line with our forecast for a 3.8% increase.
