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Home Contributors Fundamental Analysis Canada's Manufacturing Sector Pulls Back in November    

Canada’s Manufacturing Sector Pulls Back in November    

  • Canadian manufacturing sales declined 0.6% (m/m) in November. This was somewhat steeper than Statistics Canada’s preliminary estimate of a 0.4% contraction. In addition, the advance in October was revised down to 0.2% (previously reported as +0.3%). The release leaves the level of manufacturing sales around 3.8% below its pre-pandemic (February) level.
  • The picture was similarly discouraging after controlling for price effects, with manufacturing shipment volumes also dropping 0.6% on the month.
  • The decline was limited to five of the 21 industries. The pullback was predominantly driven by lower transportation equipment (-9.1%) sales. Aerospace products and parts (-23.8%), motor vehicles (-5.7%), and motor vehicle parts (-6%) all contributed negatively to the headline print. Wood product sales declined 4.1% on the month (on lower lumber prices), but remain 42.1% above year-ago levels. Meanwhile, strong performances in petroleum and coal products (+5.3%), food (+0.9%), chemicals (+1.7%), and non-metallic mineral products (+5.3%) provided some offset.
  • Inventories rose 0.8%, with the inventory-sales ratio rising to 1.62 (up from 1.6 in October). Also, forward-looking indicators were disappointing, with new orders down 1.2% and unfilled orders down 3.6%.
  • Regionally, six of the 10 provinces saw lower sales in November. Provincial performances reflected the industrial composition of November’s sales decline. Ontario saw a 0.8% decline on lower transportation equipment sales, while B.C.’s sales dropped 4.2% on a lower value of wood product shipments. In contrast, sales in Alberta (+1.4%) and New Brunswick (+5%) increased, driven by higher non-durable product sales.

Key Implications

  • The drop in manufacturing sales in November is not entirely surprising, with the outturn only slightly worse than Statistics Canada’s preliminary estimate. The broad-based resilience in sales across sixteen of the 21 industries provides some respite to the otherwise disappointing headline figure. Stripping away from the monthly noise, Canada’s manufacturing sector has been losing steam since late summer.
  • Things will likely get worse before they get better. The focus is now shifting to the near-term headwinds from the second wave of virus infections in Canada. Since November, restrictions have increased in provinces with the largest manufacturing centers, pointing to further subdued performances going forward. Although manufacturing was deemed essential by all provinces, the sector will face headwinds from the drop in domestic demand seen elsewhere in the economy. The road ahead is expected to be bumpy until vaccine distribution accelerates in Canada and abroad.
RBC Financial Group
The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.

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