Manufacturing Sales Analysis - September 2017

Auto plant strike dampens manufacturing sale growth in September

Manufacturing sales climbed higher in September, as a surge in petroleum refining output countered the impact of the GM auto plant strike in Ontario. Overall sales were up for the second month in a row (by 0.5 per cent), but are still recovering from the steep drop in the early summer. At $53.7 billion in September, manufacturing output remains about 2.3 per cent below its May peak of $55.0 billion.

The good news is that in spite of challenges in the auto sector, uncertainty over NAFTA and growing concerns about long-term global competitiveness, 2017 is shaping up to be a solid year for manufacturing in Canada. Through nine months, overall manufacturing output across the country is up 6.2 per cent compared to the same period last year.

Much of that recovery can be attributed to the lingering impact of oil price improvements in 2016. While prices this year have been more or less flat, they were about $20 per barrel higher to begin the year compared to twelve months earlier. Those early price effects drove manufacturing gains (in petroleum refining) in the first half of 2017, but their impact has been fading as the year-over-year difference in oil prices has narrowed.

That said, the 0.5 per cent increase in September was largely the result of increased production volumes rather than higher prices. Led by petroleum and coal refining, output volumes across all manufacturing industries were up 0.7 per cent in September, the impact of which was dampened by a modest decline in overall prices.

Looking ahead, the short-term outlook for manufacturing is a little soft. Although still much higher than they were a year ago, new manufacturing orders (excluding aerospace) have flattened out since the summer and are nearly 3.0 per cent below their recent high of $53.3 billion in May. Meanwhile, unfilled orders dipped in September as businesses found time to chip away at their backlog of work.

At the industry level, the story in September was about dramatic fluctuations in a few key industries with relatively flat performances elsewhere. As noted above, the most obvious of these fluctuations were in the auto sector and petroleum refining. The strike at the GM plant in Ontario contributed to a 4.7 drop ($382 million) in motor vehicle and parts production, adding to what has already been a difficult few months for the auto sector. Total sales in September were 9.5 per cent lower than they were a year earlier.

Countering those losses, petroleum and coal refining output jumped by more than 10 per cent ($509 million) as production surged in all major refining provinces. However, petroleum was not the only industry to make notable gains in September. Aerospace sales increased by 5.6 per cent, while machinery production was up 2.2 per cent, continuing its impressive run through 2017. Through nine months, sales of Canadian machinery are nearly 19 per cent higher than they were over the same period last year.

Provincially, sales growth was dominated by two provinces - Quebec and New Brunswick. Driven by aerospace sales, Quebec manufacturers saw output increase by $228 million (1.7 per cent) compared to August. Meanwhile, petroleum refining drove New Brunswick manufacturing up by $192 million - an increase of more than 13 per cent. There were also healthy gains in Manitoba and Saskatchewan, as well as Newfoundland and Labrador.

At the other end of the spectrum, the auto strike drove Ontario manufacturing sales down by $210 million (0.9 per cent). The good news for Ontario is that the drop in auto production was much larger than the province-wide decline, suggesting that other manufacturing activity across the province was relatively healthy. Manufacturing sales were also lower in Alberta in September as the increase in refinery production in that province was offset by a drop in chemicals output.

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