Domestic manufacturing sales declined in June, reflecting trade tensions and a slight rebound from large one-time deals in May, according to Statistics Canada.
Manufacturing sales fell 1.2 per cent to $58 billion in June after a 1.6 per cent increase in May, Statistics Canada said. Sales were down in 16 of 21 industries, representing more than two thirds of total manufacturing sales, according to the agency. Still, the month-to-month decline in Canadian manufacturing sales was better than expected by a consensus of economists forecasting a 1.8-per-cent drop.
The petroleum and coal product and food industries accounted for most of the month’s decline, it said.
“With recent surges in manufacturing shipments largely driven by one-off transactions, specifically in the transportation equipment category, June’s pullback was to be expected,” Omar Abdelrahman, an economist at TD Economics in Toronto, said in a note to clients.
“The outlook for manufacturing remains highly susceptible to the ongoing moderation in global growth and elevated trade tensions.”
Reprisals by China, the world’s second-largest economy, after Canada detained Huawei chief financial officer Meng Wanzhou last year has snagged Canada in the middle of a trade war with the U.S. as its President Donald Trump considers billions more in tariffs against the Asian nation.
For the second quarter, manufacturing sales rose 1.7 per cent to $174.5 billion, the data show. That’s a “still-healthy” amount, according to Abdelrahman, “but suggests soft momentum heading into the third quarter,” he said. After five consecutive monthly increases, sales in the petroleum and coal product industry fell 3.8 per cent to $6.3 billion in June as refineries in eastern and western Canada saw lower prices depress revenue, StatsCan said.
Sales of primary metals jumped 11.7 per cent in June, but were partially offset by a 5.6 per cent decline in machinery and 2.7 per cent fewer wood product shipments, the agency said. Durable goods rose 0.7 per cent in the month, it said.
Meantime, signs of a looming recession such as an inverted yield curve on bond rates is rattling business confidence. Despite the spectre of a looming crisis manufacturing stocks fell in June, which Scotiabank says is “a welcome sign, as the elevated inventory levels prompted concerns about the durability of growth going forward.
“The manufacturing data received today is consistent with an expected slowdown in economy-wide activity in June, with industry-level GDP expected to be flat, leaving the Q2-2019 now cast relatively stable at 2.78 per cent and surpassing the Bank of Canada’s latest forecast of 2.3 per cent,” wrote Nikita Perevalov, senior economist at Scotiabank.
The data show sales fell in eight of the 10 provinces with Alberta down 6.5 per cent, Newfoundland & Labrador slumping 17.5 per cent, and Nova Scotia weaker by 12.1 per cent. Saskatchewan declined 6 per cent and Manitoba dropped 5.8 per cent, according to StatsCan.
Quebec gained the most with a 1 per cent uptick largely because of a 16.6 per cent surge in primary metals, the agency said.Inventories fell for the first time in seven months, down 1.5 per cent with the inventory-to-sales ratio at 1.51 compared with 1.52 in May, StatsCan said.
“Forward looking indicators were disappointing, with new orders down 4.2 per cent and unfilled orders down 1.2 per cent,” TD Bank said.
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