Canadian manufacturing sales fall further in March, likely to worsen in April

Canadian manufacturing sales fell 9.2 percent sequentially in March, the largest single-month fall since the global financial crisis. Excluding price impacts, the picture was still significantly soft, with manufacturing shipment volumes falling 8.3 percent.

Out of 21 major industries, 17 saw fall in sales. The steep headline fall was mainly due to large declines in transportation equipment and petroleum product sales. This was mainly pre-written given the announced shutdowns in auto plants and the expectation of reduced refinery runs. Food, beverages and paper product industries provided some offset, recording a rise of 8.2 percent, 6.7 percent and 8.4 percent, respectively.

Inventories rose 0.1 percent, with a surge in the inventory-sales ratio to 1.72. Forward-looking indicators came in negative, with unfilled orders falling 0.4 percent and new orders falling 11.3 percent.

Region wise, sales dropped in 8 provinces out of 10. Ontario and Quebec led the overall falls. Sales were markedly soft in Alberta, New Brunswick, Saskatchewan, and Newfoundland and Labrador. Manitoba and Nova Scotia were the only two provinces that recorded a rise in sales, rising 8.2 percent and 2.9 percent, respectively.

March’s fall was largely as anticipated, with widespread softness throughout all major subsectors and provinces. Further pain is expected in April, as the full effects of mandated shutdowns and containment efforts appear in the data, said TD Economics in a research report.

“The easing of restrictions, both across provinces and globally, may provide a modest lift to domestic shipments and exports in May. However, the road to recovery in the sector remains cloudy. In a recent note, we highlighted the different paths of recovery expected across different industries in Canada into 2021. Most manufacturing activity is expected to see only a gradual "U-shaped" recovery, as the weak global macroeconomic backdrop, heightened uncertainty, and lingering weakness in the energy sector continue to weigh on shipments. Only a few manufacturing industries (food, chemical products) are expected to outperform or see a quick "V- shaped" recovery”, added TD Economics.