Manufacturing Sales (Aug.) - Capital Economics
Canada Economics

Manufacturing Sales (Aug.)

Canada Data Response
Written by Stephen Brown

The 2.0% m/m decline in manufacturing sales in August was caused by a drop in auto sales back to more normal levels, and the strong rise in rail freight volumes in September bodes better for sales last month.

Decline in sales likely to be temporary

  • The 2.0% m/m decline in manufacturing sales in August was caused by a drop back in motor vehicle sales to more normal levels. The strong rise in rail freight volumes in September bodes well for sales last month.
  • The 2.0% fall mainly reflected a sharp decline in the auto sector, with sales of motor vehicles dropping by 12.5% and sales of parts by 16.8%. Sales of aerospace parts and products also fell sharply, by 25%, whereas trends elsewhere were generally more positive. Indeed, excluding transportation equipment, manufacturing sales rose by 1.1%. Overall sales volumes declined by 2.2%.
  • While the overall fall was disappointing and took sales back to 6.6% below the pre-pandemic level, the sharp decline in the auto sector was partly a statistical quirk. Auto assembly plants normally close for maintenance in July but, as they did not this year, sales looked stronger than normal on a seasonally-adjusted basis that month. As a result, it was always likely they would drop back in August, and vehicle & parts sales were still above the level recorded at the start of the year.
  • There appear to be more worrying signs for the aerospace sector. The 3.4% m/m decline in total new orders and 1.7% fall in unfilled orders in August were almost entirely due to declines for aerospace. We have assumed that the still-elevated level of unfilled orders in that sector will ensure a recovery in production in the coming quarters, but rising cases of COVID-19 in many countries are making that assumption look questionable.
  • As the aerospace sector normally makes up only 4% of total sales, there is at least scope for weakness there to be offset by gains elsewhere. Wood product sales, which also make up 4% of the total, rose to a two-year high in August and, amid strong housing starts in the US and Canada, new orders jumped by 14%.
  • Overall, the further rise in freight volumes in September (see Chart 1) and the message from the business surveys is that manufacturing sales probably rose again in September. But with the pandemic likely to continue weighing on demand for many of the intermediate and capital goods that Canada produces, we do not expect a full recovery in the manufacturing sector for several quarters.

Chart 1: Rail Freight Carloads (000s)

Source: Refinitiv

Table 1: Survey of Manufacturing

Sales

Volumes

IPP Prices

Unfilled Orders

Inventories

Unfilled Orders

Inventories

C$bn

%m/m

C$bn

%m/m

%m/m

C$bn

%m/m

C$bn

%m/m

To Sales

To Sales

Jun

49.9

23.4

47.2

20.8

0.1

93.5

-2.3

87.1

-0.5

1.87

1.75

Jul

53.5

7.2

50.2

6.4

0.7

92.7

-0.9

86.5

-0.8

1.73

1.62

Aug

52.4

-2.0

49.1

-2.2

0.3

91.1

-1.7

86.6

0.2

1.74

1.65

Source: Refinitiv


Stephen Brown, Senior Canada Economist, +1 416 874 0514, stephen.brown@capitaleconomics.com