Auto sector fuels better-than-expected factory sales

Motor vehicle sector posted a 5.6 percent gain for July, while the auto parts group gained 12.1 percent

September 30, 2015
by The Canadian Press
Image: Ford

Image: Ford

OTTAWA—Canada’s factories have reported better-than-expected sales to start the third quarter—fuelled by gains in the auto sector—in another signal that the Canadian economy is sputtering back to life.

Statistics Canada reported September 30 that manufacturing sales rose 1.7 percent to $52.2 billion in July, topping the 1.0 percent increase that Thomson Reuters said economists had expected.

TD Bank economist Dina Ignjatovic said that the outlook for the manufacturing sector remains quite bright.

“More broadly, increasing strength in the U.S. economy, combined with a further depreciation of the loonie to 73 US cents, should translate into increased demand for Canadian-made goods,” Ignjatovic wrote in a report.

“Overall, after weighing on economic growth during the first half of the year, the manufacturing industry is on track to improve over the remainder of 2015, and should help to lift overall growth.”

Statistics Canada said the improvement for July reflected an increase in the volume of goods sold as constant dollar sales rose 1.1 percent.

Twelve of the 21 industries tracked saw sales improve for the month, representing 62.8 percent of the manufacturing sector.

The motor vehicle sector posted a 5.6 percent gain for July, while the auto parts group gained 12.1 percent for the month as scheduled shutdowns for North American assembly plants were shorter than previous years.

David Madani of Capital Economics, however, predicted that motor vehicle sales could slip back in August given auto output in the U.S. declined for the month.

“Overall, the increase in manufacturing sales largely reflects the gain in exports already reported for that month, and doesn’t add to our view that the economy most likely grew by close to 1.5 percent annualized in the third quarter,” Madani said.

“With the fallout from the oil price shock still unfolding, we still have our doubts about longer-term growth prospects.”

In addition to the better-than-expected result for July, Statistics Canada revised results for May and June to show stronger growth than it had earlier reported.

It said Wednesday manufacturing sales for May were up 0.7 percent compared with an earlier result of a gain of 0.1 percent. June’s growth was raised to 1.5 percent compared with the earlier estimate of 1.2 percent.

The good news from the factory sector came as the OECD slashed its estimate for Canadian economic growth this year to 1.1 percent—down 0.4 of a percentage point.

The Paris-based organization also cut its estimate for growth in Canada next year to 2.1 percent, a decline of 0.2 of a point from the OECD’s forecast in June.

The downgrade came as the OECD cut its estimate for economic growth around the world to 3.0 percent this year, down from 3.1 percent. For next year, world economic growth is pegged at 3.6 percent, down 0.2 percent from the June estimate.

The revised estimate by the OECD brings the organization in line with the most recent forecast by the Bank of Canada for 2015. The central bank also expects the Canadian economy to grow by 1.1 percent this year; however, it expects growth to pick up to 2.3 percent in 2016.