Manufacturing Sales Dip Again in December

Canadian Economics

By: Liam Daly

  • In dollar terms, Canadian manufacturing sales fell by 1.5 per cent (m/m) in December 2022, the second consecutive monthly decrease. After accounting for price effects, manufacturing sales volumes fell by 0.3 per cent (m/m).
  • Nominal sales fell in 14 of the 21 manufacturing subsectors. Sales of petroleum and coal products (-6.4%) and wood products (-7.5%) contributed the most to the decline. Meanwhile, sales of transportation equipment (+4.4%) posted the largest nominal increase, driven by higher sales of aerospace products and parts.
  • Manufacturing sales fell in 8 of the ten provinces, led by declines in Alberta, British Columbia and Ontario.
  • December ends a year in which economies fully reopened from the pandemic and food and energy markets were impacted by renewed conflict in Ukraine. Resurgent demand and disrupted supply chains drove up prices, which contributed to a 17.9 per cent increase in current dollar manufacturing sales in 2022. Reflecting conditions in the global economy, the highest growth in current-dollar sales were recorded in petroleum and coal products, transportation equipment and food industries.
  • Stripping out the impact of prices, constant dollar sales growth in 2022 was more modest, increasing by 4.8 per cent in 2022. Meanwhile, despite softening at the end of the year, total inventory levels in constant dollars rose by 8.6 per cent over 2022, as manufacturers looked to build back stock as the shadow of the pandemic receded.

Key Insights

  • Inventories posted a modest increase of just 0.1 per cent in December after recording the first decline in November in almost two years. Softening inventory growth signals that manufacturers anticipate lower future demand for goods. Higher interest rates are contributing to weakening consumer spending on durables, particularly big-ticket items often purchased on credit.
  • The job vacancy rate in the manufacturing industry reached 4.9 per cent in the third quarter of 2022 compared to 3.0 per cent in the same quarter of 2019. Labour shortages are a symptom of Canada’s ageing population and are costly to the industry as they discourage investment and constrain production. To remedy the situation, the federal government is pursuing record levels of immigration in the coming years. This alone is unlikely to resolve the situation, and a more holistic approach is required. This will involve addressing skills shortages, improving perceptions around working in manufacturing, and deploying automation where possible. 
  • President Biden’s recent State of the Union address has raised concerns among Canadian manufacturers. The president pledged “new standards to require all construction materials used in federal infrastructure projects to be made in America.” It remains uncertain how these new standards will hurt trade in goods like lumber and aluminium. However, Canadian manufacturers have become accustomed to stronger U.S. protectionism over recent years under both the Trump and Biden administrations. They are also no strangers to the protectionist rhetoric that builds in the long run-up to a presidential election. The risk of measures such as these is that besides hurting Canadian exports, the threat of trade barriers also disincentivize private investment in Canadian productive capacity.