Canadian manufacturing sales extend gains in July

Canadian manufacturing sales kicked off the third quarter on a high note, rising by 1.7% in July. This marks the third consecutive gain in manufacturing activity, with the previous two months having been revised higher. July's advance was largely due to higher volumes, as sales in real terms were up 1.1%.

The strength in July shipments was driven largely by the auto sector, with vehicle assemblies up 5.6% during the month and sales of auto parts increasing by 12. Scheduled maintenance shutdowns were shorter than usual this year, helping to boost output in July. Elsewhere, the sales performance was mixed.  Food manufacturing (+2.3%) was another area of strength, as it recorded a second straight month of gains.  Fabricated metals products (+3.1%) also had a good month, with sales bouncing back from a sharper decline in June. On the flipside, sales pf primary metals were down 3%, in line with the general downtrend seen so far this year.

Regionally, Ontario (+4.4%) recorded a large increase in sales which is unsurprising given that it is the home to most auto manufacturing. Manitoba (+6.2%) and Nova Scotia (+5.2%) also recorded strong gains during the month.  Providing some offset were lower sales in Quebec (-1.8%) - largely due to a 21% decline in aerospace production which is highly volatile - and Alberta (-1.6%) where declines in manufacturing were widespread across industries.

Inventories were up 1.1% during the month, driven primarily by higher auto and aerospace inventories.  The inventories-to-sales ratio held steady at 1.40. On the surface, forward looking indicators are encouraging with both new (+10.2%) and unfilled (+2.7%) orders up during the month. However, these gains stemmed largely from increases in the volatile aerospace industry.  Excluding aerospace, new orders were up by a more modest 1.4% and unfilled orders were down 0.1%.

Going forward, the outlook for the manufacturing sector remains quite bright.  A further recovery in auto manufacturing (following the end of a retooling shutdown of one key plant and regular summer maintenance shutdowns) should lead to further gains in auto production over the second half of 2015. 

More broadly, increasing strength in the U.S. economy, combined with a further depreciation of the loonie to 73 US cents, should translate into increased demand for Canadian-made. Overall, after weighing on economic growth during the first half of the year, the manufacturing industry is on track to improve over the remainder of 2015, and should help to lift overall growth.  Indeed, real GDP is expected to bounce back to about 2.5% (annualized) in the second half of the year, driven largely by an uptick in non-energy exports.