Canada: Manufacturing Sales Up 6% in December

Canada’s manufacturing sales rose 0.6% in December, a fifth increase in six months. The increase is well below consensus, but this is mostly due to sales of petroleum & coal products (-5.6%) and to a lesser extent to machinery (-2.8%). Excluding petroleum & coal products and machinery, sales jumped 2.0%. Higher sales were reported in 12 of 21 industries, representing about two-thirds of manufacturing sales, but the largest contributors were motor vehicles & parts (+3.4%) and plastic & rubber products (+7.5%). On a regional basis, sales declined in all the Atlantic Provinces, and in Alberta and BC. They rose by over 2.0% in Quebec and Ontario. New orders decreased 2.8% largely reflecting aerospace products (-50%). Unfilled orders declined 1.6% reflecting aerospace products (-1.0%), other transportation equipment (- 2.4%) and primary metals (-8.9%). Inventories dropped 0.9%, the first decline in 14 months. The inventory-to-sales ratio decreased .02 to 1.29. In constant dollars, manufacturing sales were up 1.2%.

OPINION: The increase in volume manufacturing sales in December is the fifth in the last six months (top chart). During that period, real sales increased 8.3%. Not all of that translated into increased production, as real inventories decreased 1.2% (-0.3% in December). This likely means future production in order to replenish inventories, on top of what is required to meet real unfilled orders (middle chart). All this suggests that there is plenty of momentum in Canadian manufacturing, despite the loonie’s parity with the greenback. For the time being, Q4 is a second quarter in a row, after the drop caused by the tsunami in Japan in Q2, where manufacturing sales contribute to economic growth (bottom chart). This should keep Q4 on track for economic growth of around 2% annualized.