• In dollar terms, Canadian manufacturing sales fell by 0.9% (m/m), the third straight monthly decline, but rose by 17.5% (y/y) in July. This was exactly the same as Statistics Canada’s flash estimate. After accounting for price effects, manufacturing sales volumes grew by 0.6% (m/m), the second monthly increase in a row, and 7.3% (y/y).
  • Nominal sales (m/m) fell in 12 of the 21 manufacturing subsectors. The largest drops were in primary metal (–9.9%), petroleum and coal products (–5.3%) and furniture and related products (–11.2%). Meanwhile food (+2.5%) and motor vehicle parts (+10.7%) posted the largest increases.
  • Manufacturing sales (m/m) declined in 5 of the 10 provinces. The losses were led by Quebec (–3.4%) after six straight monthly gains, and Alberta (–2.6%), its largest fall since April 2020. New Brunswick saw the largest gain, at 9.6%.
  • New orders (m/m) fell by 5.3%, while the value of unfilled orders (m/m) was unchanged in July. The decline in new orders was in large part due to declines in aerospace products and parts (–31.5%) and motor vehicles (–15.3%). Motor vehicle parts (+15.2%) saw the largest increase in new orders. Meanwhile unfilled orders (y/y) were up 20.1% in July.

Key Insights

At long last, supply chain issues are easing. Global shipping costs and delivery times are on the decline. This has contributed to the price of goods manufactured in Canada declining for the third straight month in July, which is the main reason nominal manufacturing sales fell. After manufacturing sales volumes increased last month, volumes ticked up again in July, an encouraging sign that the global factors holding back real manufacturing growth are beginning to dissipate. Still, downside risk remains as unpredictable lockdowns in China create the potential for future bottlenecks.

Rising interest rates and falling purchasing power will dampen consumer spending on durable goods. With uncertain economic conditions on the horizon, Canadian consumers will look to delay spending on big-ticket items, which often require loans, over the next few quarters. That will be bad news for domestic sales across several industries, like appliances and auto manufacturing. But with pent-up demand remaining in the U.S. market, the domestic decline in sales will be outweighed by increasing exports.

Inventories remain at record highs. Manufacturing inventories have been on a near-continuous increase since January of last year, reaching new record highs with each passing month. High prices for raw materials, the largest component of inventories, have been the main contributor to inventory increases. But inventories of raw materials increased in July even as prices fell by 7.4%. Still, we expect the tides to turn in the not-so-distant future. With supply chain woes easing, the current backlog of orders will begin to make its way through the system. That will lead to inventories of finished goods and goods-in-progress falling. And with firms dipping into inventories to meet demand, production levels will fall, dragging down economic growth.

Source: The Conference Board of Canada