Canadian manufacturing sales edge lower in August

Canadian manufacturing sales edged lower in August (-0.2%), following three consecutive monthly gains. Market expectations had been for a steeper pull back in shipments. In real terms, sales inched lower by 0.1%.

Sales were down in 8 of 21 industries in August, representing around half of the sector. The petroleum and coal product industry (-5.2%) recorded the steepest decline in level terms, largely reflecting a 4.7% drop in prices. Notable decreases were also recorded in the auto parts (-4.4%) and aerospace (-3.5%) industries. Statistics Canada noted that August sales activity from auto parts manufacturers was weaker than usual, resulting in lower sales on a seasonally adjusted basis.

Partially offsetting these declines were strong gains in the auto assembly (+6.7%) and wood manufacturing (+5.1%) industries. Auto assembly sales have increased 20.6% since April, reaching its highest level of sales since March 2007. The recent pick-up in activity follows the end of regular summer maintenance shutdowns and a retooling at one key plant.

Regionally, shipments were down in half the provinces with Quebec (-1.2%) recording the steepest decrease - largely reflecting lower sales in the primary metals industry. Alberta (-1.9%) and New Brunswick (-7.1%) also posted notable declines. Sales in Ontario advanced 1.1%, as higher motor vehicle sales were weighed down by the pull back in the auto parts industry.

Inventories rose 0.5%, the second consecutive monthly increase. As a result, the inventory-to-sales ratio edged higher to 1.41 from 1.40 in July.

Unfilled orders edged up 0.2% while new orders were down 5.6%. Stripping away the volatile aerospace category, unfilled orders inched up 0.1% while the decline in new orders (-1%) was more muted.

"Despite moving slightly lower in August, the manufacturing sector has showed positive momentum in recent months. Looking ahead, we expect manufacturing activity to rise through the remainder of 2015 and into 2016. The combination of solid U.S. economic growth and a soft Canadian dollar (hitting a low of 73 US cents by early 2016) should keep demand for Canadian-made goods strong", says TD Economics.

"While volumes did decline in August, our current tracking for Canadian real GDP in the third quarter of 2015 points to an expansion around 2.5% (annualized). This is ahead of the Bank of Canada's current 2015Q3 growth forecast (+1.5%), which we expect to be revised upwards at next week's MPR. The improved near-term growth picture is not expected to prompt the Bank of Canada to move its overnight rate. The contraction in real GDP over the first half of this year means it will take time to burn off the existing economic slack. As such, we expect the Bank of Canada to remain on the sidelines until 2017", added TD Economics.