Manufacturing Sales Report - July 2017

Auto plant shutdowns drive manufacturing sales sharply lower in July

Manufacturing sales tumbled in July, as extended summer shutdowns and the shift of a production line to Mexico led to a sharp decline in auto and parts production in Ontario. The drop was large enough to drive overall Canadian manufacturing sales activity down by 2.6 per cent compared to June.

While much of this decline is circumstantial, it nevertheless represents an abrupt reversal of fortune for a Canadian manufacturing sector that had, until recently, been enjoying an excellent year; March, April and May were all record-setting months for overall sales activity. However, July's large drop in output, combined with a smaller decline in June, have erased half a year's gains, driving monthly sales down to about the levels seen last November.

Short-term forward indicators point to continued weakness in the auto sector, as well as in aerospace. Auto production has outstripped demand for some time, while the aerospace sector has been struggling with order cancellations and trade disputes. New orders for the transportation equipment sector as a whole fell by close to 20 per cent in July, driving overall manufacturing new orders down by 1.7 per cent.

The silver lining is that, outside of transportation equipment, demand for manufactured goods is improving slightly - rising by 2.4 per cent in July. The largest increases in new orders were in fabricated metals, machinery, and computer and electronics products.

As noted above, the decline in manufacturing sales in July was heavily concentrated in the auto sector. Excess supply caused a number of auto plants to extend their normal summer shutdown periods by several weeks in July. That, combined with the loss of a production line to a Mexican plant, drove motor vehicles and parts production down by $1.5 billion in July - a seasonally-adjusted decline of close to 17 per cent compared to June.

Outside of the auto sector, manufacturing activity was generally flat in July, rising by about 0.2 per cent. The largest gains were in resource-based manufacturing industries, notably non-metallic minerals, primary metals and wood products. Meanwhile, output was lower in food processing and machinery production.

With the auto sector driving manufacturing activity down in July, it hardly comes as a surprise that the steepest declines provincially were in Ontario. Manufacturing output in that province fell by $1.6 billion - a decline of 6.1 per cent compared to June. At $24.1 billion, Ontario manufacturing sales dropped to their lowest level since May 2016.

However, the bad news was not limited to Ontario. Most other provinces also saw manufacturing activity slow in July. Sales in Alberta fell by 3.4 per cent, while PEI and Newfoundland and Labrador posted declines of 5.8 per cent and 7.4 per cent, respectively.

In fact, only three provinces saw manufacturing output increase in July - Quebec, Nova Scotia and Saskatchewan. Although the increase was relatively small in Saskatchewan, the two more eastern provinces both posted solid gains. Output in Nova Scotia was up 5.5 per cent ($38 million), while in Quebec, sales were up 4.3 per cent, driven higher by the aerospace and primary metals industries.

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