Canadian manufacturing sales posted a 0.9% increase in July, following last month’s upwardly revised 1.3% (previously reported as +1.1%). The release comes above expectations of a 0.6% movement. After accounting for price changes, volumes were up an even more impressive 1%.
Durable goods moved up 0.5%, where strong gains in the transportation equipment sector (2.6%) accounted for a large portion of the increases in the headline number. This was slightly offset by declines in primary and fabricated metal product shipments (-1.1% and -2%, respectively). Non-durable goods increased 1.4% on account of increases in chemicals (4.6%) and petroleum and coal products shipments (2.4%).
Regionally, the increases were centered in Ontario (2.1%), Alberta (1.7%) and Nova Scotia (8.7%). The remaining seven provinces saw declines on the month.
Inventories increased 1.2%, continuing their upward trend, whereas the inventory-to-sales ratio remained unchanged at 1.41. Forward looking indicators were not as bright, with new orders down 1.8% and unfilled orders unchanged relative to last month.
Key Implications
Today’s report was a solid one for Canada’s manufacturing sector and starts the third quarter on strong footing. The impressive pickup in motor vehicle sales more than offset the modest declines in primary and fabricated metal shipments, that were likely due to steel and aluminum tariffs.
Looking ahead, the positive release sets the stage for a decent third quarter and adds some upside risk to our real GDP forecast of 2.2%. Barring any material surprises in retail sales or inflation data releases later this week, today’s number adds further credence to the expectation that the Bank of Canada will hike rates in October.
