Canada: Manufacturing shouldn’t worry the BoC yet - Scotiabank

Derek Holt, Head of Capital Markets Economics at Scotiabank suggests that a roughly as-expected headline reading for the dollar value of Canadian manufacturing shipments is a touch better in terms of the underlying details that suggest some trend moderation and transitory softness.

Key Quotes

“Look to the trend for manufacturing and export numbers after very solid prior readings and look less to the spot print that is moderating prior momentum.”

“For Q3 so far, manufacturing shipment volumes are tracking a decline of 6.5% q/q at a seasonally adjusted and annualized rate assuming flat August and September readings in order to focus upon the effects of what is known so far. That follows a 2.8% q/q rise in Q2 and a 7.5% gain in Q1. Some moderation against solid trend growth isn’t unusual but if the pace of decline that is evident in current tracking is sustained into Q4 then it would likely become of greater concern to the BoC. Just not yet.”

“Almost half of the headline drop in July was driven by price effects with volumes down 1.4% m/m.”  

“In volume terms, the order book remains solid which is a positive sign in terms of signalling that falling shipments may be temporary. Order volumes were up 1.8% m/m in July and 0.7% in June following a large 4.1% drop in May. In year-ago terms, order volumes are up by a solid 5.7% y/y. Unfilled order volumes also climbed (+1.2%) but followed two prior declines and they are down 2.5% y/y.”    

“Inventory volumes climbed for the second consecutive month but are only up by a fairly modest 2% y/y.”

“The breadth of the decline in the dollar value of shipments in July was modest as 9 of 21 sectors registered declines.”

“Regional breadth was greater as sales values fell in seven of 10 provinces with the biggest weighted contributors coming from a 6.1% m/m drop in Ontario and a 3.4% drop in Alberta. In weighted terms, Quebec led upsides with a 4.3% m/m rise.”