Sales drop from January’s record high

After hitting a new all-time high in January, manufacturing sales came crashing back to earth in February. Led by sharp declines in motor vehicle production, total sales fell by 3.3 per cent in February, wiping out all of January’s gains and some of the increase in December as well.

The drop in manufacturing sales is the second piece of data for the month of February suggesting that all may not be well with the Canadian economy. January’s strong manufacturing numbers contributed to a surprisingly robust GDP growth rate of 0.6 per cent. While those GDP numbers were much celebrated, February’s decline in manufacturing sales corroborate equally poor export data for the same month. Canada’s economic turnaround may end up being a one-month blip.

Part of the challenge facing Canadian manufacturers and exporters is that a weaker-than-expected economy south of the border is slowing demand for their goods. While first-quarter GDP numbers in the US have yet to be released, all indications point to yet another poor start to the year. In early April, the Federal Reserve Bank of Atlanta projected US GDP growth to be in the range of 0.4 per cent. That estimate has since been downgraded to 0.1 per cent.

The drop in manufacturing sales in February was concentrated in the previously-booming auto sector. After surging ahead more than 23 per cent from September through January, sales of motor vehicles and parts fell by 8.1 per cent in February. Even with that decline, February was still the second best month in recent memory for auto and parts producers. However, the short-term outlook is not as strong; slower growth in the US, combined with rising inventories, suggest weaker growth ahead.

While motor vehicles and parts accounted for about 45 per cent of the $1.7-billion decline in overall manufacturing sales in February, there were significant losses in other industries as well. In particular, petroleum and coal refining sales were down 12.6 per cent in February. Sales were also lower in aerospace (4.0 per cent), machinery (2.7 per cent) and paper production (2.3 per cent). In fact, only two of Canada’s eleven major manufacturing industries saw sales rise in February – food products and primary metals.

Compounding matters, forward-looking indicators also took a turn for the worse after posting optimistic numbers in January. New orders were down 8.1 per cent (4.1 per cent outside of aerospace) and unfilled orders still on the books were 2.3 per cent lower.

Across Canada, most provinces saw manufacturing sales drop significantly in February. On a percentage basis, the steepest declines were in New Brunswick and Saskatchewan. On a dollar-value basis, however, the losses were concentrated in Ontario and Quebec. In Quebec, sales were down 4.1 per cent ($506 million), while in Ontario, lower auto sector activity drove total sales down 3.2 per cent ($852 million). The good news in Ontario was that even after that decline, February’s manufacturing numbers were still higher than in December and a remarkable 12.3 per cent higher than a year earlier.

The only provinces where sales were up in February were PEI, Nova Scotia and Alberta. Gains in the latter two provinces were relatively modest, but Alberta manufacturers can use all the good news they can get. For its part, PEI’s manufacturing sales soared in February, although the province’s aerospace business is struggling.