Drop in Canadian Manufacturing Sales Minimal
Manufacturing sales fell 0.1% in April following a downwardly revised 3.1% drop in March (originally reported as down 2.7%). The decline was less pronounced than market expectations of a 1.8% plunge. Removing the impact of price change, the volume of manufacturing sales rose 0.4%.
The minimal drop in manufacturing sales reflected a solid 16.4% rise in transportation equipment that was generally offset by weakness elsewhere. The gain in the transportation equipment segment was led by a 19.4% rise in motor vehicle production, although aerospace output also rose significantly. Offsetting declines were relatively broadly based, including output of petroleum and coal (-6.7%), primary metal (-4.6%) and machinery (-2.7%).
The other components provided mixed signals with unfilled orders, a leading indicator of future sales, falling 5.5%, the largest decline since January 2003. Inventories fell 0.9%, which allowed the stock-to-sales ratio to inch down to 1.58 from 1.59 in March and from a recent peak of 1.62 in January 2009. The data so far this year indicate some stabilization in this measure after soaring during the second half of 2008 from a recent low in July of 1.25.
The solid gain in transportation equipment in April is encouraging. However, this strength is not expected to last as shutdowns by the major North American car producers starting in May will put greater downward pressure on this manufacturing component in the near-term.
An attempt to contain this source of weakness has likely been a factor contributing to the Bank of Canada’s conditional commitment to keep the overnight rate at a very accommodative at 0.25% through the end of the second quarter of next year. Keeping funding costs low has likely been a factor supporting Canadian auto sales in recent months.
Auto sales - In a separate report out this morning, Canadian auto sales remained unchanged in April at an annualized 1.455 million units. This indicated that auto sales managed to hold on to all of their solid 5.5% increase in March. Statistics Canada commented that preliminary industry data are pointing to a 1% monthly rise in sales in May.
RBC Financial Group
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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.
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