The monthly manufacturing sales report from Canada is due for release today.
According to economists polled, manufacturing sales numbers are forecast to rise 2.0% on the month in June.
This follows a 1.6% increase in May. Manufacturing sales picked up momentum after falling 0.4% in April, which was revised from the initial print of a 0.6% decline. Data for May was rather encouraging. After adjusting for price factors, overall manufacturing sales grew 1.7% on a volume basis.
The data set for June coming out later today will perhaps give a full picture of how the Canadian economy fared in the second quarter of this year. Data so far is supportive of the view that Canada’s domestic picture is improving.
Most of the gains in May were attributed to transitory effects due to the resumption of the auto plants, leading to an increase in the transportation equipment industry.
Global headwinds to manufacturing still remain. With the trade dispute between the world’s two largest economies still uncertain, various other economies have been facing the heat.
Canada is also no exception to this.
Therefore, there is a possibility that the outlook on manufacturing sales could be somewhat tame. Economists’ expectations remain rather optimistic at the moment.
Motor Vehicle Sales Could Push Manufacturing Sales Higher
In the data for May, Canada’s manufacturing sales grew on the back of motor vehicle sales. This sector alone rose 13.3% on the month. It was followed by vehicle parts sales which rose 7.3% on the month.
The surge in the above two sectors came after automobile plants reopened in May following the shutdown in April. It is likely that the surge in sales was due to a backlog of orders.
For June, there is a possibility that inventory levels would have been filled. This could perhaps lead to a slower pace of gains in June. Oil prices also play a crucial role in setting the trends in the automobile sector.
Crude oil prices in June hit a bottom early on but managed to rise sharply towards the end of the month. The modestly higher oil prices could potentially dampen the sales outlook for the period.
However, for the most part, motor vehicle sales and vehicle parts sales will be something to watch out for. If the current momentum remains, we could expect to see manufacturing sales rising for the second consecutive month.
Weak Ivey PMI for June Could Spell Trouble
It should also be noted that the Ivey Purchase Manager’s Index for June fell to a four-month low. The Ivey PMI index was at 52.4 with declines in the prices index, deliveries index, and inventories index.
This could potentially have an impact on the manufacturing sales report. There is a likelihood that the weaker Ivey PMI report could see manufacturing sales rising at slower than forecast levels.
As a result, the employment index was also weaker.
But this remains in contrast to May’s unfilled orders. Data at the time showed that unfilled orders rose 0.5%. This was the third monthly increase in the previous four-month period. But it could very well be because of the shutdown of the auto plants to a certain extent.
Trade balance figures for June show that exports fell 5.1%, offsetting the gains in May. 10 out of the 11 product segments showed a decline.
In May, the US and Canada also lifted the compensatory tariffs on steel and aluminum products. As a result, the data for June was somewhat weak.
Looking at the above factors, it is quite likely that manufacturing sales could come in somewhat lower than expectations of a 2.0% increase on the month.