Manufacturing numbers point to slowdown

Canadian manufacturing sales fell for the fourth month in a row last August, dropping by 2.0 percent month over month, but were up 18.2 percent over 2021 in August.

This was a larger drop than Statistics Canada’s estimate of 1.8 percent. Meanwhile, sales in constant dollars declined by 1.7 percent, after two straight months of growth, though are up 4.8 percent year over year.

Nominal sales fell in 17 of the 21 manufacturing subsectors. The largest falls were in petroleum and coal products ( down 3.9 percent), chemical (down 4.5 percent), primary metal (down 3.2 percent), paper ( down 5.7 percent) and wood product manufacturing (down 4.3 percent). Sales of beverage and tobacco products (up 5.5 percent) and food (up 0.6 percent) posted the largest increases.

Manufacturing sales fell in seven of the 10 provinces. The largest drops were in Quebec ( down 5.5 percent), Alberta ( down 3.1 percent) and New Brunswick ( down 5.7 percent). Sales in Manitoba increased the most (up 1.8 percent).

New orders rose by 0.6 percent, from July, while the value of unfilled orders was up 1.5 percent. The jump in new orders was mainly in the transportation equipment industry, which rose by 9.8 percent, while new orders for petroleum and coal fell by 3.9 percent. Meanwhile, unfilled orders were up 20.8 percent from the previous year.

The Conference Board of Canada suggests that these numbers indicate that rapid interest rate hikes may finally be catching up. “With the Bank of Canada’s overnight rate higher than it has been for over 14 years, it was only a matter of time before a slowdown came. The decline in manufacturing volumes in August may signal that that time has come,” it said in an analysis of the data.

Demand is likely to continue dropping. Consumers will delay purchasing expensive items that might require loans, and businesses will be hesitant to expand in the current economic environment.

With sales falling inventories continue to climb, and reached a new record high in August. Inventories of finished goods rose by 2.8 percent, as sales fell by 1.7 percent. With demand drying up, manufacturers will have to begin cutting production to address the imbalance. With new orders relatively flat this month, and plenty of unfinished orders still in the backlog, inventory investment and production will both fall, pulling down GDP growth, the Conference Board suggested.

Global commodity prices began to spike in March. Energy was the main problem, but food and mineral prices jumped as well. That led to higher inflation for manufactured goods. But the trend is reversing, as raw material prices are now down 11.4 percent from their peak in June.

“Falling raw material prices have contributed to a drop in the Industrial Product Price Index, which has now dropped for three months in a row. Eventually that will make its way through to consumers—but more likely in slowing inflation rather than falling consumer prices,” the analysis concluded.