Manufacturing Sales Analysis - April 2017

Manufacturers continue to build on record production levels

April was another good month for Canadian manufacturing as increased petroleum output and better prices for aerospace products drove overall sales to new heights. Building on record-level activity in March, manufacturing sales were up another 1.1 per cent in April to reach $54.4 billion.

Those sales figures are adding to what has already been an excellent year for manufacturers. Through four months, manufacturing output in 2017 is tracking 6.0 per cent higher compared to the same period last year and is easily on pace to reach a new annual record.

As noted last month, this situation is a far cry from the story over the past two years, when weakness in the oil patch was an anchor on Canadian manufacturing. Low oil prices affected not just the value of refinery output, but also all businesses that provide metal products, machinery, construction materials, vehicles, specialized instruments and a host of other goods into the energy sector. With stabilized prices, those industries are recovering, while others - like food, plastics and forest products - continue to grow stronger.

This combination is also strengthening the short-term outlook for Canadian manufacturing. Once again, forward-looking indicators were strong in April, as new manufacturing orders were up 0.4 per cent compared to March, and are 8.4 per cent higher than they were 12 months earlier. The value of new orders is now at its highest level since January 2015.

Rising demand is also driving an uptick in the backlog of work in manufacturing. Over the last two years, there was a significant rundown in the value of unfilled manufacturing orders as many businesses were struggling to cope with sluggish demand. As new orders are picking up, so too is the value of unfilled orders, which rose 1.0 per cent in April.

April's gains in manufacturing were relatively widespread as eight of the 11 major industries recorded higher shipments. Leading the way was a recovery in petroleum refining, which had dipped in each of the previous two months. Driven by higher output levels (as opposed to price gains), refinery production was up 8.9 per cent ($445 million) compared to March. April was a good month for the aerospace sector as well, where higher prices helped drive a 6.2 per cent sales increase ($110 million). There were also notable gains in primary metals (up 3.8 per cent), and paper products (3.5 per cent).

The only significant weak spot in April was in motor vehicles and parts production, where shipments fell by 3.1 per cent compared to March. After an excellent year in 2016, the auto sector is struggling so far in 2017 as total sales through April are tracking 2.7 per cent lower compared to the first four months of last year. There was also a drop in output of plastics and rubber products in April, but unlike the auto sector, that decline comes after nearly 12 consecutive months of growth.

April's gains were also fairly widespread from the provincial perspective. Eight of the ten provinces recorded an increase in manufacturing activity, led by Quebec ($335 million) and Alberta ($175 million). Aerospace and petroleum refining drove respective gains in those provinces. It was also another good month for manufacturers in Atlantic Canada; while output was relatively flat in Nova Scotia, it was up strongly in the other three provinces.

At the other end of the spectrum, manufacturing output was down sharply in Saskatchewan (6.0 per cent), driven lower by a decline in fertilizer production. Sales were also down slightly in Manitoba, while manufacturing activity in Ontario was effectively unchanged compared to March.

For the year to date, however, 2017 is looking good for manufacturers across Canada. Shipments in every single province are up compared to the same period last year, ranging from an increase of 0.7 per cent in Nova Scotia to double-digit increases in Newfoundland and Labrador, PEI, Saskatchewan and Alberta.


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