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Canada’s manufacturing sales drop further in June, medium-term outlook remains highly uncertain

Canada’s manufacturing sales drop further in June, coming in worse than the print recorded in the prior month and consensus expectations. Manufacturing shipments dropped 1.8 percent sequentially in the month, as compared with the consensus expectations of 1.1 rise.

However, the drop came on top of positive revisions to the previous month, which is now reported as 1.3 percent rise. After accounting for price changes the volume of sales dropped by a less severe 1 percent on the month. But again, this also came after an upward revision to the earlier month, where the 1.1 percent rise was revised to a rise of 1.2 percent.

Durables, as well as nondurables, contributed to the decline in the headline print. Non-durables dropped 2.2 percent as petroleum and chemicals saw huge declines. Durables dropped 1.5 percent as declines in wood, transport equipment and primary metals more than countered gains in electronics and machinery.

Region wise, manufacturing sales dropped in all provinces except in Manitoba and British Columbia. Drops were mainly pronounced in energy producing Newfoundland, Alberta and Saskatchewan. However, manufacturing-heavy Quebec and Ontario also saw sizeable declines.

Inventories dropped 0.2 percent sequentially, with the inventory-to-sales ratio rising slightly to 1.36 on the weakness in shipments. Forward looking indicators were very disappointing with new and unfilled orders down 3 percent and 2.1 percent, respectively in June.

However, the June report does not change the view of second quarter performance, with the GDP still on track to grow by around 3.7 percent, noted TD Economics in a research report. However, this implies that the growth is expected to decelerate markedly in the third quarter. The forward looking indicators corroborate the theme of weakness in the third quarter with both new and unfilled orders declining sharply on the month.

Furthermore, the U.S. industrial production report showed that manufacturing activity in the nation dropped in July. However, the U.S. economic growth is expected to be supportive of Canada’s manufacturing activity going forward. But this support would be slightly countered by a higher Canadian dollar which is not expected to pare back its recent gains too much in light of expected continued tightening of monetary policy by the Bank of Canada. However, the medium-term outlook for the sector continues to be highly uncertain, added TD Economics.

At 16:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was slightly bullish at 67.8325, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -18.9349. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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