Manufacturing sales fall more than expected, raising questions about growth

Manufacturing sales fell a larger than expected 2.1 per cent in April – the third decline in four months – raising concerns that second-quarter growth figures might come in weaker than expected.

Aviation industry shipments drop 17.8%

Bombardier's new CS300 sits in the hangar before its maiden test flight in Mirabel, Que., on Feb. 27, 2015. Sales in the volatile aviation industry got part of the blame for the unexpectedly large drop in April's manufacturing shipments. (Ryan Remiorz/Canadian Press)

Manufacturing sales fell a larger than expected 2.1 per cent in April – the third decline in four months – raising concerns that second-quarter growth figures might come in weaker than expected. 

Sales hit $49.8 billion in April, meaning that monthly sales have plunged by 7.3 per cent hitting their peak last July. April's drop was due monthly to lower sales of food, petroleum and coal, and aerospace products.

Sales in the aerospace industry plunged 17.8 per cent, reversing the 40.1 per cent sales gain reported in March. Statistics Canada blamed, in part, the appreciation of the Canadian dollar in April, which "reduced the value of sales and inventory in the industry."

Some analysts say this report, when combined with two other weak manufacturing reports earlier this year, flag underlying concern about the strength of the Canadian recovery.

"We were hoping that manufacturing would take some of the slack left by oil and gas, but that doesn't seem to be happening," said Mike Moffatt, a professor at the Ivey Business School at Western University.

"It suggests that the Canadian economy doesn't appear to be recovering as fast as we'd like," he told CBC News. 

Factoring out the effect of price changes, shipments fell by 1.0 per cent in volume terms, a drop that RBC senior economist Nathan Janzen called "disappointing."  

Positive GDP for Q2?

Janzen says the negative sales figures could mean that Q2 growth figures won't be as rosy as some had been expecting.

"Today's report suggests some early downside risk to our previous assumptions and to our forecast that GDP will increase by 2.0 per cent [annualized] in the second quarter of 2015, following the disappointing 0.6 per cent decline recorded in the first quarter," he wrote in a commentary.

Several economists expect the Bank of Canada to downgrade its Q2 GDP forecast next month. It had earlier projected 1.8 per cent annualized growth in the second quarter.

TD senior economist Randall Bartlett still sees a positive Q1 GDP number, pointing out that until this report, most of the economic data in the second quarter – such as international trade, employment, and housing market activity – had been positive.

"Pulling together the available data so far in the quarter, real GDP growth appears likely to be in the neighbourhood of 0.5 per cent to 1.0 per cent (annualized) this quarter – not great, but still positive." 

With files from The Canadian Press


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