Canadian manufacturing sales fall more than expectations in July, likely to decelerate in Q3

Canada’s manufacturing sales dropped in the month of July. On a sequential basis, the manufacturing sales fell 1.3 percent, while the June data was downwardly revised to a drop of 1.4 percent. Consensus expectations were for a fall of 0.1 percent. Excluding price effects, the manufacturing volumes dropped even further by 1.6 percent.

Of the 21 industries, sales dropped in 11, with the fall mainly seen in durable goods, which recorded a decline of 2.9 percent. Primary metals and transportation equipment saw a decline of 7.3 percent and 3.4 percent, respectively. These two factors also contributed the most to the overall fall. Motor vehicle sales fell 4.7 percent. Shipments came in subdued in fabricated metal products and computer and electronic products. According to Statistics Canada, the fall in motor vehicle sales was partially due to “an extended shutdown at a major assembly plant”. Meanwhile, non-durable goods rose 0.6 percent sequentially, with food shipments leading the way with a gain of 1.3 percent.

Region wise, shipments dropped in five of the 10 provinces. Drop in Ontario, Alberta, Quebec and British Columbia contributed the most to the fall. On the contrary, shipments rose a solid 5.4 percent in Nova Scotia.

Inventories rose 0.3 percent sequentially, leaving the inventory-to-sales ratio at 1.54. Forward looking indicators came in negative, with new orders falling 1.6 percent and unfilled orders down 1.4 percent.

Today’s print was disappointing; however, the outsized fall in volumes should be interpreted with caution, noted TD Economics in a research report. Some falls were expected after sharp rises in June, and there are also some temporary factors at play. However, manufacturing sales and economic activity in general look set to experience a deceleration in the third quarter after a strong second quarter.

“Looking ahead, the outlook for the manufacturing sector remains clouded by trade tensions and softening global growth. Indeed, manufacturing remains in contractionary territory in the Euro Area and particularly subdued in Asia. The recent dovish tilt by most central banks may provide a modest offset, but the sector remains susceptible to trade uncertainty and lackluster business confidence”, added TD Economics.