Canadian manufacturing sales fall sequentially in September, further weakness likely

Canada’s manufacturing sales dropped sequentially in September. Sales fell 0.2 percent after a 0.8 percent rise in August. This was a bit better than consensus expectations of a fall of 0.5 percent. Excluding price impacts, the picture was worse, with manufacturing volumes down 0.7 percent.

Sales dropped in 10 out of 21 industries. The fall was led by non-durable goods, which dropped 1 percent, driven by a fall in petroleum and coal product shipments. Statistics Canada linked the reduced volumes in this category to partial maintenance shutdowns at some refineries. Softness was also recorded in chemical manufacturing shipments.

On the plus side, shipments of non-durable goods rose 0.4 percent sequentially. Machinery sales came in especially solid, but softer sales of motor vehicle parts provided an offset and caused an overall drop in the transportation equipment sector. Statistics Canada reported that production in some motor vehicle parts plants in Canada was affected by the UAW strike in the U.S.

Region wise, manufacturing sales dropped in seven provinces out of 10. Alberta led the overall fall, but softness in Quebec, Saskatchewan, and Manitoba also added to the overall fall. Meanwhile, British Columbia and New Brunswick recorded considerable rise in sales. Sales in Ontario were nearly flat on the month.

Inventories dropped 0.8 percent; however soft sales left inventory-to-sales ratio at a still-elevated 1.53.

“The still-elevated inventory to shipments ratio and soft forward-looking indicators suggest that further weakness may still be in the pipeline. All told, today's data leaves our third quarter GDP tracking closer to the 1 percent mark, slightly below the Bank of Canada's 1.3 percent”, said TD Economics in a research report.