• Canadian manufacturing sales increased 20.7% (m/m) in June, beating Statistics Canada’s flash estimate for a 16.8% increase. This follows an increase of 11.6% in May, but still leaves manufacturing sales levels 13.2% below their pre-COVID (February) levels.
  • Controlling for price effects, manufacturing shipment volumes rose a solid 18.4%.
  • The increase in sales spanned all 21 industries. Once again, the transportation equipment (+144.3%) and petroleum and coal product (+31.5%) industries led the overall increase. A resumption in production at motor plants drove a 281.6% increase in motor vehicle sales and a 190.3% increase in motor vehicle parts sales. Similarly, a ramp-up of production at refineries, coupled with higher energy prices, drove the increase in petroleum product sales. Lesser (but still-strong) increases were seen in most other industries.
  • Inventories dropped 0.3%, bringing the inventory-sales ratio down to a still-elevated 1.79 (from 2.16 in May). Forward-looking indicators were decent overall, with new orders up 23.6% but unfilled orders down 1.6%.
  • Regionally, sales were up in 8 of the 10 provinces. Mirroring the sectoral composition of the gains, the rebound was driven primarily by Ontario (+35.8%) and Quebec (+16.9%). Manitoba (-1.7%) and Prince Edward Island (-7.2%) were the only two provinces reporting a decline in sales.

Key Implications

  • June’s manufacturing sales release joins a list of other indicators pointing to a stronger-than-expected recovery in the Canadian economy in Q3. That said, the sector still has significant lost ground to make up, and its recovery (together with other business indicators more broadly) has been more drawn out than that seen in consumer and household indicators.
  • Looking ahead, we continue to receive positive signals that the recovery in the manufacturing sector continues. These signals include further increases in manufacturing employment (+1.8%) and hours worked (+3.6%) in July. Importantly, sentiment in the sector has also markedly improved, as communicated by a return to expansionary territory in Canada’s Markit manufacturing PMI in July (to an index level of 52.9) and strong ISM manufacturing sentiment readings in the U.S. The key headwind going forward is still-elevated uncertainty around the virus and trade relations. This uncertainty can be seen in Statistics Canada’s recently-revised non-residential capital & repair expenditures survey, which showed an estimated 18.5% decline in capital expenditures in the sector this year.

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