Quick take

Manufacturing Sales Down Again in July, but Volumes on the Rise

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  • In dollar terms, Canadian manufacturing sales fell by 0.9 per cent (m/m), the third straight monthly decline, but rose by 17.5 per cent (y/y) in July. This was exactly the same as Statistics Canada’s flash estimate. After accounting for price effects, manufacturing sales volumes grew by 0.6 per cent (m/m), the second monthly increase in a row, and 7.3 per cent (y/y).
  • Nominal sales (m/m) fell in 12 of the 21 manufacturing subsectors. The largest drops were in primary metal (–9.9 per cent), petroleum and coal products (–5.3 per cent) and furniture and related products (–11.2 per cent). Meanwhile food (+2.5 per cent) and motor vehicle parts (+10.7 per cent) posted the largest increases.
  • Manufacturing sales (m/m) declined in 5 of the 10 provinces. The losses were led by Quebec (–3.4 per cent) after six straight monthly gains, and Alberta (–2.6 per cent), its largest fall since April 2020. New Brunswick saw the largest gain, at 9.6 per cent.
  • New orders (m/m) fell by 5.3 per cent, while the value of unfilled orders (m/m) was unchanged in July. The decline in new orders was in large part due to declines in aerospace products and parts (–31.5 per cent) and motor vehicles (–15.3 per cent). Motor vehicle parts (+15.2 per cent) saw the largest increase in new orders. Meanwhile unfilled orders (y/y) were up 20.1 per cent in July.

Key Insights

At long last, supply chain issues are easing. Global shipping costs and delivery times are on the decline. This has contributed to the price of goods manufactured in Canada declining for the third straight month in July, which is the main reason nominal manufacturing sales fell. After manufacturing sales volumes increased last month, volumes ticked up again in July, an encouraging sign that the global factors holding back real manufacturing growth are beginning to dissipate. Still, downside risk remains as unpredictable lockdowns in China create the potential for future bottlenecks.

Rising interest rates and falling purchasing power will dampen consumer spending on durable goods. With uncertain economic conditions on the horizon, Canadian consumers will look to delay spending on big-ticket items, which often require loans, over the next few quarters. That will be bad news for domestic sales across several industries, like appliances and auto manufacturing. But with pent-up demand remaining in the U.S. market, the domestic decline in sales will be outweighed by increasing exports.

Inventories remain at record highs. Manufacturing inventories have been on a near-continuous increase since January of last year, reaching new record highs with each passing month. High prices for raw materials, the largest component of inventories, have been the main contributor to inventory increases. But inventories of raw materials increased in July even as prices fell by 7.4 per cent. Still, we expect the tides to turn in the not-so-distant future. With supply chain woes easing, the current backlog of orders will begin to make its way through the system. That will lead to inventories of finished goods and goods-in-progress falling. And with firms dipping into inventories to meet demand, production levels will fall, dragging down economic growth.

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Sean Adams

Sean Adams


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