Manufacturing sales up 0.9% in August

Increase in sales indicates rate change by Bank of Canada is unlikely

Canada’s manufacturing sector brought in a surprising $51.1billion in August sales — another piece of data signalling a Bank of Canada rate change at Wednesday’s announcement is unlikely.

Statistics Canada reported a 0.9-per-cent increase in August manufacturing sales on Tuesday. It was a surprise to economists, who had expected a jump one-third the size, about 0.3 per cent, according to Thomson Reuters.

The increase in the volume of sales was even bigger, at 1.2 per cent. The rise in output was broad-based, with sales up in 15 of 21 industries, or 69 per cent of the sector.

“This is welcome news for the Bank of Canada, which is patiently waiting for the manufacturing and export sectors to pick up the growth baton,” said TD bank econ- omist Dina Ignjatovic. “That said, we continue to expect interest rates to remain on hold for the foreseeable future.”

Food manufacturing pumped out a record high of $8.6 billion, up 1.7 per cent from the month earlier, while the metals industry gained 3.6 per cent to $3.9 billion.

Those gains, along with healthy increases in petroleum and coal products, more than offset declines of around 2 per cent in vehicles and aerospace.

Ontario’s manufacturing sales were particularly strong in August, up 0.8 per cent.

The news boded well for the performance of the economy in the third quarter after a lacklustre first half of the year.

“There’s still room to run for factories as well, with aggregate manufacturing volumes beneath levels reached at the end of last year,” said CIBC economist Nick Exarhos.

“It will be important to see the third quarter end with a good amount of momentum to be convinced that Q4 won’t see too dramatic a fall off in growth.”

The Bank of Canada is set to make its latest interest-rate announcement Wednesday.

Many expect the bank to hold rates firm for the near future as it tries to walk the fine line between lowering them to fuel the economy and raising them to slow the overheated housing market.

Gross domestic product advanced in July by 0.5 per cent, following a 0.6 per cent increase in June, the first time in a year the economy grew over two consecutive months.

The central bank projected in July a 3.5 per cent economic growth rate during the third quarter, but suggested it would downgrade its forecast for the year in Wednesday’s Monetary Policy Report.

“But this latest manufacturing sales report adds to the evidence that it won’t lower the existing 1.3 per cent projection by more than a tenth of a per cent or two,” said Capital Economics’ chief North America economist Paul Ashworth.

The central bank cut rates twice last year in an effort to offset the economic impact of weaker oil prices. The oil-price slide also took the Canadian dollar down with it. Economists believed the lower loonie would help jump-start the exportoriented sectors as it makes Canadian-made goods cheaper for international buyers.

However, while August’s monthly numbers were positive, Ashworth warned that the longer-term trend on exports has not been promising for the economy, as manufacturing sales and non-energy exports have been mostly flat since 2014.

“The bigger picture, however, is still that manufacturing sales and nonenergy exports have been pretty disappointing over the past 18 months, particularly when factoring in the massive decline in the Canadian dollar in 2014 and 2015.”

Part of the weakness, he said, reflects soft demand in the U.S., Canada’s largest trading partner.

Demand during the second half of the year appears to be picking up but it remains unclear whether Canadian manufacturers will benefit, he said, given that the Mexican peso has seen a further fall in its currency this year.