Canadian Manufacturing Sales Jumped 1.9% In March

Canada’s manufacturing sales jumped 1.9% in March, after two declines in the first two months of the year. More than a third of the increase came from a 4.5% surge in sales of petroleum & coal products. Chemicals (+3.2%) and aerospace products (+9.9%) were also important contributors. Sales rose in 13 of 21 industries representing just over three-quarters of the manufacturing sector. On a regional basis, sales were up in seven provinces out of ten, with Quebec, Ontario and New Brunswick reporting the largest gains. New orders were up 2.0%, petroleum & coal products and transportation equipment being important contributors. Unfilled orders rose 2.0%, reflecting gains in aerospace products (+2.5%) and machinery (3.5%), especially construction machinery. Inventories fell 1.2%. The inventory-to-sale ratio fell 0.04 to 1.30 in March. In constant dollars, manufacturing sales rose 1.9%.

Opinion: This morning’s report means that volume manufacturing sales rebounded after two months of weakness to start the year (top chart). The increase in factory volume sales will help support Canadian GDP in March, a welcome development after February’s contraction in real GDP. Even with March’s jump, volume manufacturing sales nevertheless subtracted somewhat to economic growth in Q1 (middle chart), although this is mitigated by increased inventories. But looking ahead, prospects are good. Factories added 24,000 jobs to head count in April. Despite headwinds generated by a strong loonie, better U.S. demand should allow Canadian factories to expand, especially since excess volume inventories which accumulated in January and February started to be cleared in March. Also, unfilled orders excluding aircraft increased in March so as to reach a level near historical highs (bottom chart).