Through the Gloom and Uncertainty, Manufacturing Sales Ticked Up in March

  • In dollar terms, Canadian manufacturing sales rose by 0.7 per cent (m/m) in March. This was in line with Statistics Canada’s flash estimate. After accounting for price effects, manufacturing sales volumes rose by 1.1 per cent (m/m).
  • Nominal sales grew in 10 of the 21 manufacturing subsectors. Sales of transportation equipment products (+$789 million) and primary metal manufacturing products (+$268 million) contributed the most to total nominal growth. Meanwhile, sales of petroleum and coal products (–$174 million) saw the sharpest nominal decline.
  • Manufacturing sales grew in 5 of 10 provinces. In relative terms, sales fell the most in Manitoba (–2.7 per cent) and grew the most in Prince Edward Island (+8.8 per cent).
  • New orders fell by 3.5 per cent, while unfilled orders fell by 2.2 per cent.

Key insights

Although near-term uncertainty is seeping out of every pore of the Canadian economy, manufacturing sales managed to eke out growth in March. Sales gains were largely due to an uptick in transportation equipment sales. Motor vehicle sales dipped sharply in February, but March saw an equally abrupt rebound. Sales of aerospace products and parts also picked up, likely as airlines rebuild their fleets to capture recovering air passenger volumes. These two subsectors were critically impacted by component shortages over the last two years, pushing them partially out of step with the broader recovery of the manufacturing sector. But in recent months, capacity utilization in the transportation equipment manufacturing subsector has begun to trend upward, nearing its pre-pandemic level.

Manufacturing output has held up despite the pressure of higher interest rates and the ever-present spectre of a recession. In theory, tighter monetary policy curbs consumer demand for many manufactured goods (particularly durable goods). Uncertainty over near-term conditions also knocks down investment as firms scale back production and try to ride through potential turbulence. However, this is not yet apparent in the data, though some subsectors are weakening. Oil prices have steadily declined since last summer, eating into the nominal value of petroleum product sales. Wood product sales have been trending downward as prices and demand for lumber fall. These may be early signs of a slowdown, though the manufacturing sector’s diversity may sustain overall sales this year.

Major investments are laying the foundation for Canadian manufacturing’s long-run outlook. But, looking past recent disruption over subsidies and a halt to construction work on the Stellantis’ Windsor battery plant, where will Canada’s place in the electric vehicle (EV) supply chain ultimately rest? Canada boasts abundant supplies of critical minerals, but approving and building new mines will take time. Seizing a substantial share of North American value-added EV production capacity will also take political finesse as the investment incentives offered by the United States are historic in scale. How the EV production chain takes shape is not yet written in stone, and as time unfolds, Canada will need to navigate the opportunities and pitfalls behind the green transition to secure the future of Canadian manufacturing.