Manufacturing Sales Analysis – December 2016

Manufacturing sales surge to end the year

The release of December's manufacturing sales estimates continued a recent and welcome trend coming out of Statistics Canada: good news about key national economic indicators. Earlier releases showed that both employment and exports surged at the end of 2016. Today, it was confirmed that the same was also true of manufacturing output.

A month ago, it was reported that manufacturing sales jumped 1.5 per cent to hit $51.8 billion - the highest sales total ever recorded for the month of November. Not only did December's sales data build on those gains, but November's output numbers were revised upward as well. From the new base of $52.3 billion in November, Canadian manufacturing sales rose by a remarkable 2.3 per cent to reach $53.5 billion in December.

mfg sales Cda

That $53.5 billion in monthly sales represents a new all-time high for manufacturing output in Canada, surpassing the previous monthly record of $53.1 billion set in July 2008. While this is certainly good news for manufacturing in the country, records such as these should always be taken with a grain of salt; manufacturing sales data are always presented in numbers that do not account for the effects of inflation (because no appropriate inflation deflators are available for manufacturing). As a result, with inflation constantly driving up prices, Canadian manufacturers should be hitting record sales figures on a regular basis - not every eight-and-a-half years.

Mfg sales by month

Nevertheless, the fact remains that record sales in manufacturing is clearly a good-news story. Even better news is that demand for Canadian manufactured goods is rising as well. New manufacturing orders (not including aerospace) were up strongly once again in December. The 2.5 per cent increase over November brings the value of new orders to its highest level since July 2014.

new non aerospace mfg orders

At the industry level, manufacturing sales activity was decidedly mixed. On the positive side, there was a surge in output from petroleum refining and from the entire range of transportation equipment manufacturing (motor vehicles and parts, aerospace, rail, ships and other miscellaneous vehicles). However, sales of most other products were slightly to the down side.

The biggest story in December was the continued recovery in petroleum refining. Higher oil prices contributed to an 11.6 per cent spike in refined petroleum output, accounting for about 45 per cent of total manufacturing sales gains across Canada for the month. Refining had been a drag on manufacturing sales activity for much of the past two years - a trend that is finally beginning to turn around.

mfg sales growth industry

As noted above, December was also a good month for producers of transportation equipment. Overall sales from that sector were up 7.4 per cent ($772 million), with positive numbers across the board. There was double- or even triple-digit growth in the smaller industries (rail, shipbuilding and miscellaneous vehicles), while motor vehicles and parts production was up 4.1 per cent, and aerospace was 5.7 per cent higher.

mfg sales growth by province

Provincially, manufacturing activity was somewhat mixed as well. Six provinces posted stronger sales numbers, while four were down compared to November. Leading the way on the positive side were Ontario and Quebec, where sales were up by $580 million and $503 million, respectively. Sales were also higher in Canada's energy-producing provinces, including a 5.4 per cent jump in Saskatchewan. On the down side, (relatively) severe weather in BC's Lower Mainland drove December's manufacturing sales lower, while output also dipped in Manitoba due to weaker output levels in chemicals, machinery and primary metals.

2016 in Review
Although some year-end adjustments are yet to come, preliminary numbers for December give us our first look at overall manufacturing performance for 2016. In general, the year was characterized by a poor first half as low oil prices, a sluggish economy in Canada and the United States, and the Ft. McMurray wildfires all contributed to falling or stagnant manufacturing activity. A modest recovery through the summer gave way to a surge in output in November and December, fuelling optimism for what 2017 has in store.

mfg sales rise

Overall, Canadian manufacturing sales reached an estimated $614.4 billion in 2016 - an increase of 1.0 per cent over the previous year. That total is slightly below the all-time high of $618.6 billion, set two years ago. As noted above, however, all manufacturing sales figures are in nominal dollars; they do not account for the effects of inflation.

Last year would have been a stronger one for manufacturing in Canada were it not for the impact of crude oil prices. Although refined petroleum output ended the year well, for 2016 as a whole, refinery sales were 13.4 lower than they were in 2015. Lower energy sector investment also drove down demand for machinery and fabricated metals, which saw output fall by 7.1 per cent and 4.8 per cent, respectively in 2016.

energy related industries dampen growth chart

On the positive side, 2016 was a good year for wood producers. The expiry of the Softwood Lumber Agreement in late 2015 improved Canada's access to the US market throughout 2016, helping drive sales up by 10.8 per cent year-over-year. Motor vehicle and parts producers also had a good year, with sales up 7.9 per cent. Other growth leaders in 2016 included food products, as well as plastics and rubber products.

mfg sales growth 2016

By province, 2016 was a mixed year. As has been noted many times in these analyses, the impact of energy prices had a devastating effect on manufacturing in Canada' energy-producing provinces, while activity elsewhere was generally positive. Canada's growth leaders in 2016 were PEI (5.8 per cent), BC (4.2 per cent) and Ontario (4.0 per cent). Gains in the latter two provinces were driven by lumber and motor vehicles and parts, respectively.

mfg sales growth by province

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