Manufacturing Sales Analysis – September 2016

Industrial and transportation equipment help manufacturing sales rise for the fourth straight month

Manufacturing sales rose for the fourth consecutive month in September, driven higher by a surge in vehicle- and equipment-building activity. Overall sales increased by 0.3 per cent for the month, reaching $51.5 billion - their highest level since January.

Mfg sales in Canada

The steady-if-modest increase in manufacturing output since May has improved the outlook for 2016 as a whole. For the first time since April, year-over-year sales are above 2015 levels and, with three quarters of the year in the books, year-to-date sales are tracking higher as well. A stabilizing energy sector should solidify the manufacturing base in Canada and keep year-over-year sales growth in positive territory for the remainder of 2016.

MFg sales by month

That said, expectations are not for runaway growth in manufacturing output in the coming months. Forward-looking indicators still point to softer-than-ideal demand, driven down by sluggish economic growth in Canada and, more recently, the uncertainty generated by the unexpected results of the US Presidential election. Although they have trended higher in recent months, new, non-aerospace orders were down in September, while unfilled orders and total inventories continue to move in the wrong direction. Unfilled orders dropped by 1.3 per cent in September, while manufacturers' inventories climbed to their highest level since last November.

mfg sales by industry

The increase in manufacturing activity in September was largely driven by the production of transportation equipment, machinery and other durable finished or semi-finished goods. Leading the way were deliveries of aerospace vehicles and fabricated metals, which jumped by 3.8 per cent and 2.4 per cent, respectively. In both cases, however, the increase in September is a deviation from a recent downward trend. It remains to be seen if this is a one-month aberration or the beginning of a turnaround.

Among Canada's major manufacturing industries, there were also higher sales of machinery, motor vehicles and parts, and paper products. However, several of the country's smaller manufacturing industries also enjoyed a good month in September. Deliveries of rail cars were up nearly 73 per cent to reach their highest monthly total in more than a decade. Sales of electrical equipment, as well as computers and electronics, were also up strongly. While in the case of rail cars and electrical products, these increases are likely the result of a one-time spike in deliveries, in the case of computers and electronic products, output has been trending higher for months.

Computer and electronics output on rise

On the negative side, there was a sharp drop in primary metals manufacturing in September (-3.4 per cent). The good news there is that the decline was the result of sales returning to trend levels after an unusual spike in August. Sales were also lower for wood products, refined petroleum, and a range of clothing and textiles.
At the provincial level, results were mixed in September. On a dollar-value basis, the largest increase in manufacturing activity was in Quebec, where sales rose by just under $200 million (1.7 per cent). There was also a modest increase in Ontario ($86.5 million, or 0.3 per cent) manufacturing that month. BC, Newfoundland and Labrador, and Saskatchewan also posted gains in September. Meanwhile, there were declines elsewhere, with steeper losses in the Maritime Provinces and more modest ones in Manitoba and Alberta.

For the year to date, however, Ontario remains Canada's manufacturing growth leader in 2016. Provincial sales through September are tracking nearly 4.8 per cent higher than last year. There has also been solid growth in Nova Scotia (4.4 per cent) and PEI (4.0 per cent). Meanwhile, the struggles continue for Canada's energy-dependent manufacturing provinces. Year-to-date sales are down sharply in the other two Atlantic Provinces, as well as in Alberta. However, with energy prices flattening, look for some improvement in those provinces in the coming months.

mfg sales by province

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