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A Not-So-Jovial June for Manufacturing

Canadian Economics

By: Kiefer Van Mulligen

    

  • Canadian manufacturing sales fell by 2.1 per cent (m/m) in June. This was a less significant decline than Statistics Canada’s flash estimate which called for a 2.6 per cent decrease. After accounting for price effects, real manufacturing sales volumes also fell by 2.1 per cent (m/m).
  • Nominal sales fell in 17 of the 21 manufacturing subsectors. Sales of transportation equipment (-$328 million) experienced a significant drop. Meanwhile, sales of wood products (+$30 million) saw the steepest rise.
  • Manufacturing sales fell in 8 of 10 provinces. In relative terms, sales decreased the most in Newfoundland and Labrador (-13.5 per cent) and increased the most in New Brunswick (+6.1 per cent).
  • New orders fell by 4.7 per cent, while unfilled orders decreased by 0.8 per cent.
  • The Raw Materials Price Index fell by 1.4 per cent (m/m) in June, while the Industrial Product Price Index was virtually unchanged.

Key Insights

In June, Canadian manufacturing sales declined by 2.1 per cent (m/m), more than offsetting a 0.4 per cent (m/m) increase in May. Transportation equipment manufacturing has been a volatile component in recent months. The previous Survey of Manufacturing highlighted an 11.2 per cent (m/m) sales increase in aerospace product and parts as a significant growth contributor to the month’s growth. However, the latest survey points to a 5.6 per cent (m/m) drop in motor vehicle parts and a 2.9 per cent (m/m) drop in aerospace product and parts as major factors driving the decline.

The manufacturing sector’s capacity utilization rate rose from 79.7 per cent in May to 80.2 per cent in June. The Conference Board of Canada’s Index of Business Confidence also experienced a modest increase in the second quarter. However, our survey revealed that approximately 63 per cent of Canadian businesses are currently operating below their optimal capacity. Until more businesses reach or exceed optimal capacity, there may not be a strong incentive for manufacturers to expand their facilities or add to existing machinery and equipment.

A rail strike appears increasingly likely, and such an event could have significant economic consequences, disrupting the supply chain system. The ongoing labour dispute, involving workers at Canadian Pacific Kansas City (CPKC) and Canadian National (CN) railways, suggests that a strike could commence as early as August 22 if an agreement is not reached. Western Canadian agricultural producers, who are beginning to harvest early season crops, would be among the hardest hit by this potential strike. While CPKC and CN are vital for transporting agricultural products, they also play a key role in moving crop inputs, such as potash. Industry giant Nutrien has urged a swift resolution to the dispute, warning that sales could be negatively impacted should a strike ensue.

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For more details about Canadian manufacturing and industrial trends, please explore our Industry Lens reports here.

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