• Canada manufacturing sales rose 2.1% in March after falling 0.2% in February
  • Part of the increase came from higher energy costs that boosted sales at petroleum refineries. Controlling for price effects, sales increased 1.6% in March

The bounce-back in manufacturing sales is consistent with other indicators suggesting that much of a pullback in overall economic output in February was tied to transitory bad-weather effects that temporarily limited transportation capacity. Earlier February GDP data suggested that rail capacity in particular was limited by cold weather in February and export volumes also bounced back in March after a soft prior month. The increase in March manufacturing sales was led by a 4% jump in motor vehicle sales and a price-led jump in petroleum & coal sales.

The manufacturing numbers mean that overall economic growth probably returned at least modestly to the positive column in March after GDP declined 0.1% in February. Growth for Q1 as a whole still looks likely to be on the soft side – at a touch less than 1%. We continue to expect a ‘rebound’ to a 2% rate in Q2 as some of the transitory disruptions that plagued activity in Q1 (bad weather, Alberta oil & gas production curtailments) ease. Escalating U.S.-China trade tensions have added grey clouds to the outlook, though. The US manufacturing sector has already shown signs of slowing in recent months – and part of that is likely due to increased U.S. import tariffs that have disproportionately impacted the industrial sector. That was, of course, before the implementation of the latest round of US tariff escalation last Friday. Close integration of North American supply chains means that any negative impact to US industry will also likely have spillovers to Canada. We continue to expect, at this point, that those spillovers will be manageable but uncertainty about global trade disruptions will continue to weigh on business investment decisions – and, alongside still benign inflation trends, will leave the Bank of Canada with plenty of reason for caution about considering any future interest rate hikes.

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