Canada’s manufacturing sales rise in April, strong export growth likely to underpin economic growth in Q2

Canada’s manufacturing sales rose in April, coming in above consensus expectations. Sales grew 1.1 percent in April, as compared with 0.9 percent gain expected and 0.8 percent seen in March. The volume of sales rose strongly by 0.5 percent on the month. However, it came atop of downward revision to the earlier month.

Most of the rise was seen in non-durables that grew 2 percent monthly, with petroleum & coal products, paper and non-metallic minerals leading the charge. Durable shipments also rose, albeit by a more muted 0.3 percent, as rises in primary metals, electronics and machinery were partially countered by a drop in transportation equipment and electrical equipment.

Region wise, manufacturing sales grew in all but two provinces, declining in Saskatchewan and largely flat in Manitoba. Meanwhile, Newfoundland led the provincial gains with Alberta and New Brunswick also witnessing solid gains on petroleum and coal product exports.

Inventories rose 0.9 percent sequentially, with the inventory-to-sales ratio unchanged at 1.35. Forward looking indicators were slightly encouraging, with new orders rising 0.4 percent and unfilled orders rising 1 percent in April.

Today’s report marks another good performance from Canada’s manufacturing sector. In spite of the downward revisions to earlier months, the solid headline implies that the manufacturing sector momentum continues to be intact, with solid export growth expected to underpin strong economic growth of around 2.9 percent in the second quarter, noted TD Economics in a research report.

Leading indicators, such as new and unfilled orders also continued to be encouraging and augur well for the future. This notion is validated by U.S. manufacturing industrial production data in April. However, auto sales seem to have peaked in recent months, likely to exert some downward pressure on Canada’s manufacturing activity in the medium term.

Furthermore, while the loonie stays comparatively low, it has risen sharply in recent weeks and might take some steam out of exports in the future.

“Should the economic momentum remain resilient, we expect the Bank of Canada to raise rates in October, with two more hikes likely over the next year”, added TD Economics.