Manufacturing gains in Canada likely to be sustained in coming months

Canada’s value of manufacturing shipments increased in January by 2.3% m/m to a record $53.1 billion, as compared with consensus expectation of 0.5% m/m increase. Constant dollar sales grew 2.4% m/m to the highest value since July 2008. This underlines that the volume of goods sold is coming back to the pre-recession highs. Meanwhile, December’s data was slightly revised upwards. The month reported an increase of 1.4%, as compared to the earlier reading of 1.2%.

Higher sales of motor vehicles and parts mainly drove the strong headline number in January. Motor vehicles and parts sales grew 9.6% m/m to $6.6 billion as higher-end and costlier models shipment, and the lower Canadian dollar value increased shipments. January also recorded a solid growth in food products, increasing 4.6% to $8.4 billion.

Shipments of petroleum and coal manufacturing continued to decline, dropping 5.9% m/m in the month to the lowest nominal value since August 2004. Unfilled orders recovered in January, increasing 0.4% m/m to $91.8 billion after ending 2015 on a softer note. The unfilled orders were mainly driven by an increase in aerospace product and parts orders. Inventories rose 0.6% m/m, mainly due to aerospace products and parts. In spite of this, the inventory-to-sales ratio continued to decline, reaching 1.36 in the month, the lowest value since December 2014.

Provincial increases were led by Quebec and Ontario. Sales in Ontario surged 3.9% m/m to $26.4 billion as strength in motor vehicles and parts industries increased the provincial numbers. The province also recorded a growth of 6.9% m/m in manufactured food sales. Meanwhile, increase in machinery and fabricated metals manufacturing helped the gains in Quebec.

Meanwhile, Alberta’s sales continue to be weighed on by petroleum and coal manufacturing. The persistent drop in the value of refined petroleum products resulted in the sector becoming the third largest manufacturing industry in the province, behind food product manufacturing and chemicals.

January’s manufacturing report was solid, with the underlying reading slightly stronger than implied by the headline figure that was weighed by petroleum and coal product prices. Manufacturing sales, excluding petroleum & coal products increased more impressively by 3.1% m/m, the third continues monthly increase.

“We remain optimistic that much of these gains will be sustained in coming months as the past declines in the loonie and robust U.S. domestic demand continues to support Canadian shipments”, says TD Economics.

Most of the upside is expected to be seen throughout British Columbia, Ontario and Quebec. Ontario’s motor vehicle plants that had gone offline in mid-February are now online, which will lead to year-on-year readings slightly overestimating the underlying strength. Meanwhile, the major oil producing jurisdictions, mainly Alberta and Saskatchewan, are expected to witness continued weakness, as oil sector related manufacturing continues to suffer.