Canada’s manufacturing sales rise in March, competitive CAD to underpin manufacturing in months ahead

Canada’s manufacturing sales rose in March, coming in line with consensus expectations. Manufacturing shipment were up 1 percent, just shy of the 1.2 percent growth expected by economists; however, it came slightly above a downward revision to February sales that dropped 0.6 percent. After accounting for price swings the volume of sales rose solidly by 0.2 percent sequentially. But this came atop of downward revisions to the earlier months.

Both durables and non-durables added to the headline growth, rising 1.3 percent and 0.7 percent respectively. The growth in durables were widespread; but led by transportation equipment, wood, electronics and electrical equipment. Within non-durables, food manufacturing, and plastics & rubber products accounted for most of the gains while petroleum and chemicals dropped on the month.

Region wise, manufacturing sales rose in all except four provinces. It dropped in Newfoundland, Manitoba and Saskatchewan. Sales were slightly changed in Quebec; however, it rose in Ontario, B.C., Alberta, and rose sharply in Atlantic Canada.

Meanwhile, inventories rose 1.2 percent sequentially, with the inventory-to-sales ratio same at 1.35. Forward looking indicators were encouraging, with new orders rising 2.6 percent and unfilled orders rising 1.8 percent in March.

The March report is slightly disappointing given the miss on the headline and downward revisions to earlier month’s performance. However, despite the revisions, Canada’s manufacturing sector momentum stays quite strong, with most of the strength from late 2016 carrying over into the first quarter of this year, noted TD Economics in a research report. First quarter manufacturing sales rose 1.9 percent in real terms, the quickest rate of growth in almost three years.

“As such, we remain of the view that the Canadian economy expanded by about 3.5 percent during the first quarter of the year”, said TD Economics.

Furthermore, the report gives some encouraging bits as far as future activity, with leading indicators remaining strong. Along with resurging U.S. manufacturing production, which was up 1 percent in April on the back of solid transport equipment activity, and a competitive loonie, these should underpin Canada’s manufacturing activity in the months ahead.

However, the outlook is filled with uncertainties as Canada’s manufacturing and export sectors face increasingly protectionist trade rhetoric. This poses downside risk as far as investment and net exports in the longer-run. Along with an easing housing activity and still soft inflationary pressures, these risks would probably see the central bank stay on the sidelines through early-2018, added TD Economics.