- Canadian manufacturing sales declined 0.7% (m/m) in October, following a 0.2% drop in September (no major revisions were made to the headline number). This was worse than consensus expectations for a flat print. After stripping out price impacts, the picture was still disappointing, with manufacturing volumes down 0.4%.
- Sales fell in 11 of the 21 industries. The disappointing print was a durable goods story, which fell 2.4% on the month as a result of a large drop in transportation equipment sales (-3.1%). This was driven by lower motor vehicle (-4.7%) and motor vehicle parts (-4.6%) shipments, with sales of both impacted by lower activity at some plants and also due to the UAW strike south of the border. Notable weakness was also seen in fabricated metal sales (-8.2%).
- In contrast, shipments of non-durable goods were up 1.3%. This was led by a rebound in petroleum product sales (+6.2%) as refineries ramped up production following maintenance shutdowns in September (as per Statistics Canada). Food sales also showed some strength (+1.9%). Providing some offset were lower sales of plastics and rubber products (-5.7%).
- Regionally, manufacturing sales were only down in 3 of the 10 provinces. Ontario (-3.1%), British Columbia (-3.6%), and to a lesser extent, Quebec (-0.4%) led the overall decline. New Brunswick saw a 26.5% spike in sales as a result of higher non-durable good sales.
- Inventories declined 0.4%, but weak sales left the inventory-to-sales ratio at a still-elevated 1.54 (up from 1.53 in September). Forward looking indicators were discouraging, with new orders down 4.9% and unfilled orders also down 1.5%.
Key Implications
- October’s disappointing release should not come as a major surprise, with the impact of the UAW strike largely pre-written. Digging beneath the headline, manufacturing sales were flat excluding auto sales, and a decent number of industries and provinces still saw sales increase in October. That said, a second consecutive decline in shipments doesn’t bode well for real GDP growth in Q4.
- We have noted before that Canadian manufacturing shipments and exports face a cloudy outlook given the global backdrop. The recent de-escalation of U.S.-China trade tensions should help support an uptick in sentiment, but manufacturing PMIs globally are still in contractionary territory. Uncertainty will continue to cloud the outlook until further details and assurances are provided.
