Manufacturing Sales Report - April 2018

Refinery shutdowns drive manufacturing activity lower in April

After a record-setting March, manufacturing activity retreated in April as refinery shutdowns in Alberta drove overall manufacturing sales lower. All told, manufacturing sales fell by 1.3 per cent in April, from about $57.0 billion in March to $56.2 billion. Even so, that decline was not enough to fully offset the gains made in March. Total manufacturing output in April was still the second highest on record in nominal-dollar terms. 

In spite of the decline in April, 2018 is still shaping up to be another good year for manufacturing sales growth in Canada. With one third of the year in the books, total manufacturing shipments are tracking 4.0 per cent higher than they were over the same period in 2017. 

Given that lower refinery output was the main driver behind lower manufacturing sales in April, it is no surprise that month-over-month losses were entirely in production volumes. Real price-adjusted manufacturing output fell by 1.9 per cent in April, with some of that blow cushioned by higher prices.

One potentially concerning note from the April manufacturing data release is that forward-looking indicators were softer than in March. New, non-aerospace orders fell by 1.0 per cent, marking the second consecutive monthly decline. The good news, however, is that the overall level of new orders remains high compared to historic levels. 

Strong demand since February has meant that Canadian manufacturers have plenty of work lined up for the months ahead. Unfilled orders (not including aerospace) rose by 0.8 per cent in April, hitting $42.1 billion. 

Somewhat paradoxically, even as manufacturers were receiving new work orders, their inventory levels were also rising. Continuing a 30-month trend that was highlighted last month, inventory levels rose once again in April, increasing by a full 2.2 per cent. Higher inventories suggest slower shipments growth in future, even as higher unfilled orders suggest the opposite. These mixed signals make it difficult to predict what the next few months will hold for manufacturing in Canada.

Turning to specific industries, as noted earlier, the decline in manufacturing output in April was largely due to the impact of refinery shutdowns on petroleum output. Refined petroleum production fell by nearly 11 per cent in April ($638 million), accounting for almost 90 per cent of the overall decline in manufacturing output that month. There were also notable declines in machinery (4.0 per cent) and aerospace output (6.4 per cent), as well as in two of Canada's smaller manufacturing subsectors - electrical equipment, and miscellaneous transportation equipment. 

On the positive side, after stagnating through most of 2017, food processing industries enjoyed their third consecutive month of strong growth. Sales were up 1.9 per cent in April and have risen by 5.7 per cent since January. There was also an improvement in motor vehicles and parts production, which rose by 1.8 per cent in April. At just under $8.5 billion, auto sector activity has recovered to its highest level since June.

With notable declines in petroleum refining and aerospace production, it is unsurprising that the largest drops in manufacturing output by province were in Alberta and Quebec. On a dollar-value basis, Quebec saw the larger decrease, with total shipments falling by $472 million (3.4 per cent) compared to March. Alberta, however, posted the larger decline on a percentage basis (5.3 per cent, or $326 million). Manufacturing activity also fell across most of Atlantic Canada.

Meanwhile, it was the opposite story in Saskatchewan where sales were up strongly in April for the second month in a row. Output in that province rose by 6.7 per cent, building on a 4.3 per cent increase in March. Nova Scotia also saw notable gains in April (up 3.4 per cent), while sales were higher in Manitoba as well (0.8 per cent). For their part, BC and Ontario posted modest losses and gains, respectively.

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