Highlights:
- Manufacturing sales declined 0.4% with volume sales falling a larger 1.5%.
- A large drop in sales in the transportation sector – led by a pullback in motor vehicle sales – accounted for the bulk of the volumes drop.
- A build in inventories implies that production was not as weak as sales. We continue to assume GDP increased 0.1% in October and will rise 2.0% in Q4 as a whole.
Our Take:
The 0.4% dip in nominal manufacturing sales was despite an increase in prices. Sale volumes declined a larger 1.5% to almost entirely retrace increases over the prior two months. A large drop in the transportation sector – led by a 7.6% pullback in motor vehicle sales – accounted for the bulk of the drop in overall sale volumes. Motor vehicle sales were reportedly weak because of transitory production disruptions at some plants. A 1.1% drop in chemical sales was also surprisingly soft given an earlier reported 13% surge in chemical export volumes in October.
Challenges clearly remain in the manufacturing sector going forward, particularly given the possibility for a ‘bad’ outcome from ongoing NAFTA renegotiations. Nonetheless, there are also positives in terms of stronger growth in the U.S. industrial sector, which tends to import a lot from Canadian manufacturers, and a stronger domestic Canadian economy. Looking through monthly volatility, manufacturing sale volumes have been trending modestly higher, and were still up almost 3% on a year-over-year basis in October. In the very near-term, a build in inventories suggests that manufacturing production wasn’t as weak as sales in October. The manufacturing component of GDP probably declined about half a percent in the month but offsetting strength in most services components should still allow for a modest increase in overall GDP in October to build on September’s 0.2% increase.
