* Manufacturing sales rebounded 1.7% in July, well above market expectations for a 0.5% gain, following a revised 0.1% decline (was -0.5%) in June.
* Strength was relatively broadly based with 15 of 21 industries reporting an increase. This marked a reversal of the broadly based weakness seen in June.
* Controlling for prices, the volume of sales rose 1.1%. This more than retraced a revised 0.9% decline in June that, while sizeable, was still smaller than the previously reported 1.3% decline.
* Regionally, a 2.1% gain in sales in Alberta may have reflected some reversal of negative flood impacts in June; however, this appeared to be a relatively small part of the story with sales also rising solidly in the rest of the country, led by a 3.2% rebound in sales in Ontario.
Canadian manufacturing sales jumped a stronger-than-expected 1.7% in July following a revised 0.1% decline (previously was -0.5%) in June. The gain in July reflected relatively broadly based strength that more than offset the broadly based weakness seen in June. Sales of petroleum and coal (2.4%), “miscellaneous” products (23.9%), fabricated metal products (5.9%) and motor vehicles (3.5%) all provided solid support. The main source of partial offset came from the volatile aerospace sector, where sales dropped by 17.3% following an 11.6% jump in June.
Controlling for the impact of prices, the volume of sales rose 1.1% in July to more than retrace a revised 0.9% drop in June that, while still sizeable, was smaller than the previously reported 1.3% decline. Inventories rose 0.4% following a 0.1% dip in June and suggesting that improving sales were drawn from new production rather than being pulled from inventories.
Regionally, a 2.1% gain in sales in Alberta may have reflected some reversal of negative flood impacts in June; however, this appeared to be a relatively small part of the story with sales also rising solidly in the rest of the country, led by a 3.2% rebound in sales in Ontario.
The rebound in the volume of manufacturing sales in July is encouraging and suggests that, while not significantly related to flooding in Alberta, weakness in June was nonetheless temporary. While challenges for the sector remain, we expect that stronger growth externally, particularly in the United States, will support stronger manufacturing activity over the second half of this year and into 2014. In the near term, the jump in sales in the sector in July, along with stronger inventory growth, points to manufacturing output providing a significant support to GDP growth in the month (with the manufacturing component of GDP likely to rise about 1.0%) after acting as a sizeable drag in June. In addition to stronger manufacturing output, we expect a rebound in other sectors, like mining and transportation, that were more significantly impacted by June flooding as well as a bounce-back in construction activity after a drop in June related to a strike in Quebec. As a result, today’s report remains consistent with our expectation that July GDP rose 0.7% to more than retrace the 0.5% drop reported in June.
RBC