Manufacturing Sales Fall Even as Prices Soar

  • In dollar terms, Canadian manufacturing sales fell by 2.0 per cent (m/m) but rose by 22.1 per cent (y/y) in May. This was slightly better than Statistics Canada’s flash estimate, which called for a 2.5 per cent (m/m) decrease. After accounting for price effects, manufacturing sales volumes fell by 3.9 per cent (m/m) but rose by 6.3 per cent (y/y).
  • Nominal sales grew in 10 of the 21 manufacturing subsectors. Sales of petroleum and coal (+$556 million) and machinery manufacturing (+$125 million) products contributed the most to total nominal growth. Meanwhile, sales of transportation equipment (–$1,590 million) saw the sharpest nominal decline, largely a result of plant retooling and microchip supply chain issues.
  • Manufacturing sales grew in 5 of the 10 provinces, especially in Nova Scotia (+13.5 per cent) and Manitoba (+3.2 per cent).
  • New orders fell by 7.1 per cent, while unfilled orders fell by 0.8 per cent.

Key Insights

Even on the back of rising prices, nominal manufacturing sales fell in May. In our latest national forecast, manufacturing output growth will slow but is not expected to turn negative this year. But, as recessionary winds blow stronger, the near-term risks to manufacturing sales are tilting to the downside. New orders fell sharply in May and employment in the manufacturing sector dropped by 0.7 per cent in the second quarter.

Global energy market disruption continues to loom large in the sales data. Russia’s ongoing invasion of Ukraine is keeping energy prices elevated. In May, Canadian petroleum and coal product sales rose by 5.4 per cent in value but actually fell by 1.7 per cent in volume. As Russia threatens to turn off the taps to Europe, the European Union Parliament is classifying nuclear and natural gas as “green” for investment purposes. Canadian East Coast LNG projects have come back in vogue. These facilities could boost the manufacturing sector while fuelling energy security in Europe. But fossil fuel investments could also lock-in future emissions and may conflict with green transition plans.

The idea of “friend-shoring,” or securing supply chains among countries with similar values, may influence the future of Canadian manufacturing and trade. The Minerals Security Partnership, which is aimed at securing critical mineral supply chains and includes Canada and the United States, is a recent example. While Canada may find it necessary to pursue friend-shoring for its longer-term implications, economic efficiency suffers when barriers to trade pop up. Protectionism can add to inflationary pressures and may be a hard sell in the short-term.