OTTAWA: Canadian factory sales rose at a meager pace in July and missed market expectations by a wide margin, suggesting the country’s manufacturing sector remains in a rut. The result helps justify the Bank of Canada’s more cautious tone in its most-recent rate decision, in which it acknowledged nonenergy exports have disappointed to date.
The value of manufacturing sales rose 0.1% month-over-month in July, to 50.67 billion Canadian dollars ($38.50 billion), Statistics Canada said Friday. That follows a 0.8% increase the previous month. The consensus call was for a 1% gain, according to economists at Royal Bank of Canada. While July’s sales gain missed expectations, it still marks the first time in 2016 that factory shipments rose for two consecutive months.
In volume terms, July factory sales climbed 0.6%. Over all, sales rose in just nine of the 21 industries tracked. On a year-over-year basis, Canadian factory sales declined 2.6% in July. Expectations for the stronger month-over-month gain were built in after trade data for July indicated exports rose 3.4%, or the fastest advance in six months. Excluding energy products, exports rose a more robust 4.1%, the trade data indicated.
Jimmy Jean, economist at Desjardins Capital Markets in Montreal, said the July factory report is a disappointment, and there is cause for concern given signs of weakness in U.S. demand as exhibited in industrial-production data, and mixed readings from the Empire State and Philadelphia Fed manufacturing indexes. “With such a disheartening outlook, hopes for a manufacturing renaissance in capital spending may well remain a fantasy,” Mr. Jean said.
Forward-looking indicators suggest Canadian factories remain in a soft patch. New orders fell 2.9% in July, while unfilled orders—or the stock of orders that will contribute to future sales on the assumption they aren’t canceled—edged down 0.1%.
The Bank of Canada said in its rate decision earlier this month that its outlook will likely be downgraded due to disappointing performance by nonenergy exports. Exports on nonenergy goods were expected to drive growth, bolstered by U.S. demand and weakness in the Canadian currency, and offset the headwinds posed by lower commodity prices.
Canadian economic output, as measured by gross domestic product, fell 1.6% annualized in the second quarter, reflecting the negative fallout from wildfires this past spring in Alberta. Statistics Canada said in the July factory report that fewer firms compared with May and June reported being hurt by the wildfires. The food-processing component was among the gainers in July. Food manufacturing sales rose 1.9% to 8.48 billion Canadian dollars. The data agency said this reflected a strong showing by grain and oilseed milling operations that reported difficulties in previous months obtaining canola.
Primary metals rose 2.9% to C$3.74 billion, and shipments of petroleum and coal products advanced 2.5% to C$4.27 billion. Buffeting July’s factory sales report was the aerospace component. The generally volatile sector recorded a 9% drop in sales, to C$1.51 billion. Statistics Canada said aerospace sales tend to be weak in the first month of a quarter.
