Factory sales rebound, but for how long?
OTTAWA Canada’s manufacturing sector has been down, but it’s still not out.
That much is obvious, given the June gain in factory sales — an unexpectedly strong pace of 0.8 per cent — and it could be interpreted as the beginning of a new pattern, one in which the growth chart is on a steady rise. But that might be too optimistic. True, Tuesday’s data was better than the 0.7-per-cent increase for June that analysts had forecast, with Statistics Canada showing factories soaring back from a oneper-cent drop during the previous month. That works out to a sales value of $50.2 billion. Ontario was the engine driving a large portion of the gains, which were led by machinery and transportation equipment.
Overall, sales rose in 15 of the 21 industries tracked by the federal data agency.
During the past year, though, monthly factory sales have been down as often as they have been up — granted, by varying degrees. It’s a number-crunching process that has been repeated since the 2008-09 recession in Canada, and the sector is likely to struggle to maintain June’s upward momentum.
The manufacturing data “has gone back and forth. It’s basically been fluctuating around the $50-billion mark per month,” said Mike Holden, director of policy and economics at Canadian Manufacturers & Exporters.
“So, it did go up in June. It was a decent increase and we saw some growth in some of the sectors that had been struggling recently — machinery, fabricated metals and motor vehicles. It’s too early to point to that as being the beginning of a turnaround. It’s good news. It’s better to be growing than not,” said Holden, who is based in Calgary.
“But I think we’d have to wait for a few more months of data before we point to that (June report) as a new upward trend.”
Since the economic downturn, factory operators have been criticized for not investing enough money to expand their export markets.
Manufacturers have also been hurt by the oil-price collapse that hampered activity in Alberta, which has also been sidelined by recent wildfires in that province.
Still, others view June factory sales as a glass half full.
“The jump in manufacturing sales supports our view that much of the May 2016 weakness was transitory and is consistent with our forecast that monthly gross domestic product rose by 0.5 per cent in both June and July, following the 0.6-per-cent plummet in May,” Paul Ferley, assistant chief economist at RBC Economics, wrote in a research note.
But that May retrenchment “will likely prove to have been sufficient” to result in a second-quarter 1.5-per-cent annualized decline in GDP, he said, which would be “somewhat beyond the Bank of Canada’s most recent forecast that indicates a drop of one per cent.”
Brian DePratto, at TD Economics, noted that “while too late to make much impact on secondquarter growth, (Tuesday’s) report points to a healthy rebound in output thereafter, as temporary factors fade.”
Many economists expect an economic rebound in the third quarter of this year of between three and four per cent as oil production gets back on track and rebuilding efforts begin in the Fort McMurray area of Alberta that was hardest hit by recent wildfires.