Canadian Manufacturing Sales Grow by 0.9%

There has been a spike in the Canadian manufacturing sales for the month of August as the recorded figures came in more than expected, the release also strengthened the probability that the country will experience an economic rebound in the third quarter after shrinking in the second. Data from Statistics Canada revealed today that Canadian sales grew by 0.9% from July to reach 51.12 billion Canadian dollars ($39.02 billion) as 8 of the country’s 10 provinces posted an increase. In a poll conducted by Reuters, analysts had forecasted a growth of 0.2%.

In 15 out of 21 industries there was growth in sales, this represents 69% of the manufacturing sector, while in terms of volume, sales edged higher by 1.2%. The Bank of Canada, which releases its latest forecasts on Wednesday, is projecting a healthy third-quarter recovery after a major wildfire in the oil-producing province of Alberta in May caused the economy to contract in the second quarter.

"(The report) will provide even more reassurance to the Bank of Canada that third quarter GDP growth rebounded strongly," Capital Economics economist Paul Ashworth said in a note to clients. The central bank cut interest rates twice last year to help compensate for falling oil prices and is not expected to move again until early 2018.

There was also a 0.9% decrease in new orders within the month to result in an annual decline of 3.2%, with a fall of 1.3% in unfilled orders resulting in an annual fall of 7.5%. The Canadian dollar took a beating on the month as its strength posed a problem for aircraft orders which are priced in USD, however there was an overall decrease for the second successive month. Inventories dropped by 0.5% to give an annual decline of 3.2% and the inventory/sales ratio declined to 1.39 from 1.41 the previous month. Sales in the petroleum and coal products industry rose by 2.5% to 4.38 billion Canadian dollars in August, the second consecutive monthly gain.

"(This) does suggest we are probably seeing some of the resumption of activity in Alberta trickle through into August," said Andrew Kelvin, senior rates strategist at TD Securities.

Sales in the food industry rose by 1.7% in August to a record C$8.57 billion, while the primary metals industry posted a 3.6% gain to reach 3.89 billion Canadian dollars. Derek Holt, vice president of Scotiabank Economics, said the manufacturing data were "a decent signal for August GDP growth" but noted new orders had fallen by 0.9%, the second consecutive drop.

"This may signal that the momentum of the manufacturing sector's acceleration is a transitory phenomenon in keeping with concerns about the durability of a third quarter pop," he said in a note to clients.

The Canadian dollar grew after the data with USD/CAD slipping to 1.3060 from 1.3080, although the move was pared quickly given the dip in orders.