Canadian Manufacturing Sales Down 0.9% in January

Canada’s manufacturing sales dropped 0.9% in December, the second decline in 7 months (top chart). Excluding a 34% dive in sales of aerospace products, sales were unchanged from December. Lower sales in primary metals (-3.5%) and machinery (-4.5%) were offset by increases in automotive products (+4.5%). Sales decreased in 11 of 21 industries representing 44% of manufacturing sales. On a regional basis, sales were down in all the five central provinces going from New Brunswick to Manitoba. With gains in 13 industries, new orders increased 0.8% despite a 55% plunge in aerospace products. Aerospace products (-1.0%) are again responsible for the 0.2% decline in unfilled orders, reflecting the appreciation of the loonie against the greenback in January (a large portion of unfilled orders in the aerospace industry are held in US dollars). Inventories rose 1.1%, the 15th gain in 16 months, being up in 19 industries out of 21. The inventory-to-sales ratio advanced 0.03 to 1.32. In constant dollars, manufacturing sales dropped 1.1%.

OPINION: This morning’s report is not as bad as it seems. Sales of the all important motor vehicle & part industry continued the upward trend started after the Japanese tsunami (middle chart). The 1.1% drop in total volume sales in January comes after a 1.3% increase in December. Despite January’s drop, the hand-off from December allows volume sales to contribute to economic growth so far in Q1 (bottom chart). One also has to take account of the rise in volume inventories. Furthermore, after discounting for price changes and in particular for the impact of the loonie’s rise, volume unfilled orders actually edged up in January. In any event, with the US on the upswing and domestic demand holding firm, expect shipments to rebound sooner rather than later.