Canada’s manufacturing sales rise in July, likely to remain strong in months ahead

Canada’s manufacturing sales rose in July after a severe jump in June. The gain in July was mainly due to increased sales of primary metals, food products and petroleum and coal products. Manufacturing sales increased 0.1 percent in the month, as compared with 0.8 percent increase in June. In real terms, volumes of sales increased 0.6 percent.

Sales of primary metals, food products and petroleum and coal products increased 2.9 percent, 1.9 percent and 2.5 percent respectively. The rise in petroleum and coal products was driven by increased refinery volumes as production of oil resumed after wildfire-related shutdowns, stated TD Economics in a research note.

However, decline in the volume of sales of motor vehicles and parts by 2.5 percent and of machinery by 3.3 percent countered the increase in other segment. The aerospace industry, which is quite volatile, recorded a 9 percent decline in the volume of sales.

The improvement in manufacturing in the past two months has definitely been a positive development for Canada’s economy. But sales are yet to recover all the ground lost earlier in 2016 as volumes continue to be 2 percent lower than January levels.

On the positive side, there is likelihood of further gains in manufacturing sales. Production of oil sands was restored through the end of July, with petroleum and coal manufacturing expected to show further strength in the months ahead as refining activity resumes totally, according to TD Economics.

Furthermore, U.S. economic activity is likely to gain certain momentum in the second half of 2016, and along with a weaker currency, it should assist in spurring demand for Canada’s manufactured products and exports.

The manufacturing sector’s revival in June and July gives a solid handoff for the third quarter. Canada’s manufacturing volumes are expected to remain solid in the months ahead, assisting in raising the overall economic growth in the second half of this year and into 2017, added TD Economics.

Region wise, sales in Canada rose in half the provinces in July. Quebec registered the largest increase as higher sales of metals and chemicals countered the declines in aerospace products. On the other hand, manufacturing sales in Alberta fell as decline in chemical manufacturing more than countered the rises recorded in petroleum and coal products. Meanwhile, manufacturing sales in Ontario remained stagnant in July in nominal terms.

In July, inventories increased 1 percent to the highest level seen since January 2016. Thus, the inventory-to-sales ratio rose from 1.40 in June to 1.41 in July. New orders dropped 2.9 percent in the month, mainly because of a decline in aerospace, whereas unfilled orders dropped 0.1 percent in July.