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Manufacturing Sales Dipped in February – A Sign of Things to Come?

Canadian Economics

By: Kiefer Van Mulligen

  • In dollar terms, Canadian manufacturing sales fell by 3.6 per cent (m/m) in February. This was lower than Statistics Canada’s flash estimate, which called for a 2.8 per cent (m/m) decrease. After accounting for price effects, manufacturing sales volumes fell by 2.4 per cent (m/m).
  • Nominal sales grew in 9 of the 21 manufacturing subsectors. Sales of machinery products (+$134 million) and electrical equipment products (+$75 million) contributed the most to total nominal growth. Meanwhile, sales of petroleum and coal products (-$1,536 million) saw the sharpest nominal decline.
  • Manufacturing sales fell in all provinces except for Prince Edward Island (where sales were flat). In relative terms, sales fell the most in Saskatchewan (-9.9 per cent) and Alberta (-9.6 per cent).
  • New orders fell by 2.7 per cent, while unfilled orders rose by 0.6 per cent.

Key insights:

  • Higher interest rates may be starting to wear on manufacturing sales. However, February’s decline could partly reflect a rebalancing as several of the subsectors posting significant declines in February saw significant gains last month. Durables like motor vehicle manufacturing products fell sharply as that sector continues to see volatility in supply conditions. However, sales of non-durable manufacturing products like food, beverage and tobacco also slid. The significant drop in overall new orders bodes poorly for the near-term manufacturing outlook as firms retrench in anticipation of a slowdown.
  • Accumulating drags on global growth could see demand weaken for Canadian manufacturing exports. Foremost among these risks is the wobbly confidence in the global banking system as tighter monetary policy grips many major economies. With a pullback in lending likely to lower consumption and investment spending on equipment – particularly in the United States – manufacturing sales will likely decline further as the year progresses. China’s economic rebound may prevent demand from falling off, though geopolitical tensions are doing little to improve the outlook.
  • With federal budgetary support behind clean and green growth, the manufacturing sector appears set to benefit over the medium term. But the sector must contend with competitive pressures from the United States, where large-scale government subsidies are drawing investment into American manufacturing firms. Promising recent announcements about electric vehicle and battery manufacturing plants in Canada give room for optimism. But how much of the opportunity presented by the green transition will be captured by Canadian manufacturers remains to be seen.

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