Canadian Manufacturing Sales Weaker than Expected

Manufacturing sales weakened more than expected in March, falling 1.6%. Expectations had been for a 0.4% decline. As expected, labour disruptions caused a sharp decline in manufacturing sales of motor vehicles, which dropped by 6.2% with parts sales off 5%. Relative to a year earlier, sales were 7.7% lower. On a volume basis, eliminating the impact of price changes, shipments fell 3% in March

The motor vehicle sector was a large contributor to the monthly decline in sales, but it wasn't the only source of weakness - 18 of 21 sub-sectors posted declines. Excluding motor vehicles, parts and accessories sales posted a 1% decline following two months of gains and marking the biggest drop since September 2007. The aerospace industry saw stronger sales again and metals sales rose 2.9% on the back of higher prices. Six provinces reported declines, with Ontario posting a sharp 2.9% dip and Alberta sales off 1.4%.

Today's report shows that manufacturers continue to struggle despite gains reported in both January and February. Sales were 3.7% slower at an annualized rate in the first quarter and fell 4.9% compared to the first quarter of 2007, marking the biggest decline since the fourth quarter of 2001. After taking price changes into account, sales fell at a faster 11.3% annualized pace in the first quarter relative to the fourth quarter of 2007.

Against the backdrop of a struggling U.S. economy - RBC forecasts a mild contraction in U.S. GDP in the second quarter - an elevated Canadian dollar and rising input costs, the pressure on the manufacturing sector is likely to persist in the near-term. The data support our view that the Bank of Canada will maintain an easing bias and we look for an additional 25 basis-point rate cut to be announced in the months ahead as policymakers try to ensure that policy is stimulative enough to sustain Canada's domestic economy in the face of increasing restraint from the trade sector and weak manufacturing activity.

RBC Financial Group
http://www.rbc.com

The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.