Canada: Manufacturing sector should contribute to economic growth in Q2 - NBF

Data released today showed that shipments of manufactured goods fell in April in Canada and May’s numbers were revised higher. Kyle Dahms, an analyst at the National Bank of Canada’s analyst, explained that the overall manufacturing sales decline will hurt April GDP, the inventory surge will provide some offset.

Key Quotes:

“Manufacturing sales in Canada came in 1.0% below consensus expectations in April largely due to the transportation segment. Excluding the latter category (which tends to be volatile), shipments actually rose 0.8% in the month thanks to a sizeable gain for food manufacturing and the fourth consecutive month of significant increases for the petroleum and coal product industry which rose 2.9% in the month and 25.7% year to date.”

“While the overall sales decline will hurt April GDP, the inventory surge will provide some offset. Looking at quarterly data, following a 1.3% increase in the first quarter of the year, real shipments are on track to rise an annualized 2.1% in Q2 after one month of data, thanks in part to the excellent handoff from March.”

“While this morning’s report shows that the manufacturing sector should contribute to economic growth in Q2, an indicator is blipping on our radar. Indeed, no less than 16 of the 21 industries are showing an increase in their inventory-to-sales ratio since the end of 2017. In the current context of trade uncertainty, this ratio standing at a post-recession high could be a headwind to growth in the coming months.”