Canada’s manufacturing shipments rebound in April; likely to be hit by wildfires in May, June

The value of Canada’s manufacturing shipments in April grew one percent, after slowing sharply in the months of February and March of 2016. The consensus forecast was for a rise of 0.6 percent.

Even though the April’s figure came out better than the expectations, it just countered certain declines from the earlier two months. Volumes of manufacturing shipment, excluding price changes, grew slightly stronger by 1.4 percent as prices in the manufacturing sector declined 0.5 percent on a month-on-month basis after a flat reading in March.

April’s manufacturing data came in healthy, leading to a possible upside to the GDP projections, said TD Economics in a research report. Meanwhile, according to the forward looking indicators, Canada’s manufacturing sector is expected to remain busy for certain time.

The 1.4 percent m/m growth in real shipments implies that manufacturing might contribute positively to the economic activity in the second quarter of 2016, according to TD Economics.

But this is expected to be made difficult by the possible drops in petroleum and coal product manufacturing in May and somewhat in June due to wildfires in Northern Alberta impacting feedstock to refineries.

Meanwhile, despite the strong manufacturing report, there is a high possibility that sectoral output will be weighed on heavily by the effects of wildfire-related issues. The drag will also be likely seen in the data for May and June. Demand from the US is expected to stimulate demand throughout other sectors.

However, in wake of the recent appreciation of the CAD and a continued weak global backdrop, Canada’s export activity is expected to underpin economic growth, but to a lesser degree than seen in few quarters recently, added TD Economics.

Growth in manufacturing shipments, in nominal terms, was seen in just 10 industries out of 21. Petroleum and coal products’ sales grew 8.3 percent to $4.1 billion in April. Prices mainly drove the rise and raised sales for the second straight month. Sales in transportation equipment grew 2.1 percent to $11 billion, with more robust aerospace product and parts sales.

Region wise, Alberta saw gains in manufacturing shipment of 3.5 percent, whereas Quebec recorded growth of 1.4 percent and Ontario a growth of 0.4 percent. Alberta saw a19.6 percent growth in petroleum & coal products.

However, the sales in Alberta were 11.8 percent lower than in April 2015. Growth in Quebec was mainly driven by gains in aerospace, whereas primary metals and transportation equipment aided in increasing Ontario’s numbers.

The rise seen in Ontario and Quebec reversed certain losses recorded in the previous months. In the earlier months, transportation equipment was a drag on both the provinces.

“Still, while optimistic, we remain somewhat more cautious as far as a strengthening trend given the advances in the loonie over previous months,” noted TD Economics.