Quick take

Manufacturing Sales Up Thanks to Inflation

• Canadian manufacturing sales rose by 2.5 per cent (m/m) in March. This was slightly higher than Statistics Canada’s flash estimate, which called for a 1.7 per cent increase. After accounting for price effects, manufacturing sales volumes were unchanged compared to February.
• Nominal sales grew in 16 of the 21 manufacturing subsectors. Sales of petroleum and coal (+9.1 per cent) and primary metal (+6.5 per cent) contributed the most to total nominal growth. Meanwhile, sales of machinery products (–4.9 per cent) saw the sharpest nominal decline.
• Manufacturing sales grew in all 10 provinces, led by Ontario (+2.4 per cent), Alberta (+4.1 per cent), and Saskatchewan (+11.1 per cent).
• New orders increased by 1.4 per cent, while unfilled orders grew by 1.7 per cent.

Key Insights:

• Manufacturing sales rose yet again, thanks primarily to higher prices. Still, real inventories have also been on an upward trend over the last few months. This shows that some manufacturers have adapted their strategies to the volatility of the supply crunch. As such, there has been a general increase in real inventories of finished goods and the inventory to sales ratio relative to the 2016–19 period. Part of this shift is due to manufacturers moving further from a just-in-time to a just-in-case inventory strategy.
• But all is not rosy, and inflation will remain a major challenge for manufacturers going forward. Consumer Price Index reached an annualized rate of 6.7 per cent in March, and close to three quarters of businesses surveyed in our April Index of Business Confidence foresee a yearly price increase of 6 per cent or greater over the next six months. Rising input costs, increasing labour shortages, and sporadically high rates of absenteeism due to Covid waves in Canada are adding unnecessary strains to an already precarious situation.
• China’s zero-COVID policy threatens to cause even more economic pain. To quash outbreaks, China has enacted strict measures that have slowed production and spurred port backlogs. Automakers and electronics manufacturers with operations in China have been severely impacted. As a result, procurement of key inputs such as semiconductors will remain difficult over the next few months. Canadian automakers will continue to bear the brunt of these shortages, with production lines running under full capacity and the automobile market staying undersupplied.