- Canada’s manufacturing sales fell 0.6% (m/m) in May. This was well below Statistics Canada’s flash estimate for a 1% increase. The picture was even more disappointing after accounting for price effects, with manufacturing shipments volumes down 2.5% on the month.
- The decline in manufacturing shipments was predominantly led by the machinery (-16.9%) and chemicals (-2%) industries, but weaknesses were seen elsewhere, including in food (-0.6%), non-metallic minerals (-2.9%), and fabricated metals (-1.8%) industries. Strong sales in the wood product (+6.1%) and primary metals industries (+3.6%) provided some offset.
- Forward looking indicators were negative, with new orders down 4% and unfilled orders down 4.1%. Inventories rose 0.7%, bringing the inventory to sales ratio up to 1.56 (from 1.54 in April).
Key Implications
- It is difficult to find a silver lining in May’s manufacturing sales report. This time around, weaknesses extended beyond the auto industry. The one point of respite is that some of these large movements appear to be transitory. For instance, the decline in May was largely driven by a significant retracement in sales of machinery following an unusually strong outturn in April. The drop in unfilled orders was also mainly attributable to the volatile aerospace category.
- The outlook for manufacturing should gradually improve as auto production resumes and supply chain disruptions slowly dissipate, though some of these constraints may take time to resolve. On the demand front, the vaccine-led reopening in Canada and the U.S. should bode well for previously hard-hit sub-industries.
