Canada’s manufacturing sales drop in May; disruptions in auto industry from wildfires likely to persist

Manufacturing sales of Canada fell in slightly more than projections in May after recovering briefly in April. The decline is mostly due to temporary disruptions to supply chains. Sales fell 1 percent in May, the third fall in five months. Excluding price changes, manufacturing shipment volumes dropped at an even larger 2.1 percent, emphasizing a lower activity level in May, noted TD Economics in a research note.

The disruptions in auto industry might ease in June; however, the ones attributed to wildfires in Alberta are expected to continue, manifesting in about a 0.9 percent contraction in GDP in the second quarter. The slight growth recorded in Quebec reversed certain losses in previous months. A stronger response has been anticipated from manufacturers in Quebec to boost production on lower CAD and strong US demand, said TD Economics.

Reconstruction in Fort McMurray and solid US demand are likely to stimulate demand throughout other sectors. But given the recent appreciation of CAD and heightened global economic uncertainty emphasized by the Brexit vote, the support from increasing export activity is unlikely to be as pronounced as it has been in earlier quarters, according to TD Economics.

June’s manufacturing sales in nominal terms dropped in over two-thirds of industries. Motor vehicles sales were mainly responsible for the drop, falling 4.2 percent in May, whereas auto parts sales dropped 2.3 percent on the month.

According to Statistics Canada’s report, the early effects on manufacturers of the wildfires in Northern Alberta as sales of petroleum of petroleum and coal products that dropped 2.2 percent attributed totally to lower volumes. Region wise, Alberta saw the largest fall of 2 percent, followed by Ontario that witnessed a 1.4 percent drop. Autos and petroleum in these two provinces make up a huge share of manufacturing production. Meanwhile, sales in Quebec rose 0.1 percent from April.