- Canadian manufacturing sales rose 7.0% month-on-month in July, somewhat lower than Statistics Canada’s earlier flash estimate of 8.7%. This was the third straight gain. Despite the improvements, July sales were still 5.4% below February levels.
- Stripping out price effects, real manufacturing sales increased by 6.1% on the month.
- Sales advanced in 13 of 21 industries in July, with transportation equipment driving the gains. Sales in this industry rose by 24.1% owing in large part to many auto manufacturers shortening or skipping summer shutdowns this year. The electrical equipment, appliance, and component industry posted the next best gain, increasing by 20.2% on the month. Interestingly, food manufacturing sales declined in July by 1.7% mainly due to a 28.4% drop off in seafood sales. New testing measures imposed by the Chinese government disrupted lobster sales in July.
- Inventories fell again for the fourth straight month, decreasing by -0.8%. This took the level of inventories to their lowest level since February 2019. However, the inventory-to-sales ratio remained higher than its February level (July: 1.63; February: 1.56). Forward looking indicators were mixed as new orders increased by 9%, while unfilled orders declined by 1.2% in July.
- Most provinces saw manufacturing sales rise in July. Ontario and British Columbia led the improvement, with sales increasing by 12.8% and 4.3% respectively. Almost half the gain in sales in B.C. was attributable to wood products which has benefited from strong housing construction activity in Canada and the U.S. Manufacturing sales declined in Prince Edward Island (-3.1%), Nova Scotia (-6.1%) and Quebec (-0.2%).
Key Implications
- Another month, another step up for Canadian manufacturing. While the level of sales remains below where it was in February, the upward trend over the last few months indicates that activity is normalizing.
- Manufacturing sales should continue to recover in coming months, reflecting improving economic activity at home as well as in trading partners, particularly the United States. Both Canadian and American manufacturers were more optimistic in August as observed in increases in the Markit and ISM manufacturing indices. The Canadian Markit manufacturing index increased from 52.9 to 55.1 in August, while the U.S. ISM manufacturing index rose to 56.0 last month. Both indices were at their highest level since late-2018.
- Despite the optimism, pandemic-related uncertainty still fills the air. Reopening economies and pent-up demand fueled the increases over the last few month. Going forward, with consumers saving more and businesses more reluctant to invest, manufacturing sales growth will likely weaken. The easiest part of the recovery is over, the hard part is next.
