Canadian manufacturing sales rise a stronger than expected 2%
PAUL FERLEY
RBC ECONOMICS RESEARCH
December 16, 2009
Manufacturing sales rose a robust 2% in October that built further on a 1% gain in September (downwardly revised from an initially estimated increase of 1.4%). The reported rise in October was double market expectations of a 1% increase. On a volumes basis, the increase was still indicative of solid activity, although the rise was a more moderate 1.2% and followed a 1.1% gain in September.
The aerospace component, soaring an impressive 54.1%, led the strength in October’s manufacturing sales. This increase helped to offset declines of 31.4% and 29.4% in September and August, respectively. Also providing support in October was a 7.2% jump in the petroleum and coal component, although a lion’s share of the gain likely reflected gains in prices rather than volumes. Motor vehicle sales were slightly stronger than expected, rising 2.9%, although this was down from the 7.4% gain in September. (Preliminary production numbers suggest that this component likely fell about 5% in November.) The main offset was a 4.4% drop in fabricated metal sales following a 4.9% rise in September.
In terms of other components in the report, inventories were essentially flat, but they managed to eke out a 0.1% gain. This represented the first increase in this measure since January. Unfilled orders fell 3.4%, led by a 6.1% decline in the aerospace component. StatsCan indicated that practically all the strength was concentrated in Quebec where sales jumped 7.3% in the month. Excluding Quebec, manufacturing sales were up only 0.2%.
A second consecutive strong rise in the volume of manufacturing sales provides further support to the growing optimism that the Canadian economy is pulling out of recession. Manufacturing has been a major drag on economic growth throughout most of the downturn, largely reflecting massive cutbacks in auto production. The increase reported in today’s release bodes well for growth October GDP to rise 0.3% in the month following the 0.4% gain in September. This puts the economy on track to meet our current fourth-quarter GDP forecasted increase of 3.4% at an annual rate.
This represents a marked improvement from the disappointing 0.4% rise recorded in the third quarter; however, to assure that this stronger growth is sustained, we expect that the Bank of Canada will keep monetary conditions accommodative near-term, maintaining its conditional commitment of holding the overnight rate unchanged at 0.25% through the end of the second quarter of 2010. A tightening in policy is not expected until the second half of 2010, although the pace is expected to be gradual, with the overnight rate rising only 100 basis points and finishing 2010 at 1.25%.
PAUL FERLEY
RBC ECONOMICS RESEARCH
December 16, 2009
Manufacturing sales rose a robust 2% in October that built further on a 1% gain in September (downwardly revised from an initially estimated increase of 1.4%). The reported rise in October was double market expectations of a 1% increase. On a volumes basis, the increase was still indicative of solid activity, although the rise was a more moderate 1.2% and followed a 1.1% gain in September.
The aerospace component, soaring an impressive 54.1%, led the strength in October’s manufacturing sales. This increase helped to offset declines of 31.4% and 29.4% in September and August, respectively. Also providing support in October was a 7.2% jump in the petroleum and coal component, although a lion’s share of the gain likely reflected gains in prices rather than volumes. Motor vehicle sales were slightly stronger than expected, rising 2.9%, although this was down from the 7.4% gain in September. (Preliminary production numbers suggest that this component likely fell about 5% in November.) The main offset was a 4.4% drop in fabricated metal sales following a 4.9% rise in September.
In terms of other components in the report, inventories were essentially flat, but they managed to eke out a 0.1% gain. This represented the first increase in this measure since January. Unfilled orders fell 3.4%, led by a 6.1% decline in the aerospace component. StatsCan indicated that practically all the strength was concentrated in Quebec where sales jumped 7.3% in the month. Excluding Quebec, manufacturing sales were up only 0.2%.
A second consecutive strong rise in the volume of manufacturing sales provides further support to the growing optimism that the Canadian economy is pulling out of recession. Manufacturing has been a major drag on economic growth throughout most of the downturn, largely reflecting massive cutbacks in auto production. The increase reported in today’s release bodes well for growth October GDP to rise 0.3% in the month following the 0.4% gain in September. This puts the economy on track to meet our current fourth-quarter GDP forecasted increase of 3.4% at an annual rate.
This represents a marked improvement from the disappointing 0.4% rise recorded in the third quarter; however, to assure that this stronger growth is sustained, we expect that the Bank of Canada will keep monetary conditions accommodative near-term, maintaining its conditional commitment of holding the overnight rate unchanged at 0.25% through the end of the second quarter of 2010. A tightening in policy is not expected until the second half of 2010, although the pace is expected to be gradual, with the overnight rate rising only 100 basis points and finishing 2010 at 1.25%.
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