Real Manufacturing Sales Fell Again in September—A Recessionary Signal?

Key insights

We expect that manufacturing output has contracted and will continue to contract into the first quarter of 2024. Real manufacturing sales fell in August and September. The S&P Global Canada Manufacturing Purchasing Manager’s Index remained below 50 for a sixth consecutive month in October, which suggests the sector has been contracting. Employment in manufacturing has also fallen from a peak in July. And new orders have started to trend downward. Yet, other indicators muddy the water. Capacity utilization rates are holding fast. Wage growth in manufacturing (up 7.1 per cent year-to-date) has outpaced the all-industry composite. We may be heading into a recession (and might already be there), but these mixed signals suggest that the manufacturing sector is holding up somewhat against the pressure.

Yet, labour action may be obscuring the signals sent by recent manufacturing sales releases. In September, the United Auto Workers strike in the United States likely weighed on transportation equipment production in Canada. This manufacturing subsector posted nearly the weakest absolute month-over-month decline of any subsector. Motor vehicle manufacturing is highly integrated between the two countries and disruptions to the smooth transfer of components and parts can slow down assembly lines in Canada. The strike in the U.S. extended well into October, so we expect further weakness in next month’s motor vehicle manufacturing sales. Auto industry strikes followed closely on the heels of the strike at the Port of Vancouver and along the west coast, which took a bite out of sales in July and August. This could complicate the use of sales data as a recessionary herald.

For more details about Canadian manufacturing and industrial trends, please explore the Industry Lens.