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Manufacturing sales dip slightly in August as losses in petroleum refining offset auto sector gains

After three months of solid growth, manufacturing sales dipped slightly in August, driven down by the impact of lower crude oil prices on petroleum refinery output. Overall sales were down 0.2 per cent compared to July, falling to $52.1 billion. In spite of the decline, August was still the second best month for Canadian manufacturers so far this year.

For the first time since March, Canadian manufacturers did better this year than in 2014. On a year-over-year basis, manufacturing sales were 0.6 per cent higher in August than they were at the same point last year. Barring unforeseen circumstances, that should continue through most of the remainder of 2015.

manufacturing sales in canada chart

The blame for August’s decline in manufacturing activity can be pinned in large part on a drop in oil prices that month. The price of a barrel of West Texas Intermediate (WTI) fell from US$50.90 per barrel in July to US$42.87 per barrel in August. That, in turn, lowered the value of refined petroleum output by 5.2 per cent for the month. In fact, subtracting out the impact of petroleum refining, the picture for Canadian manufacturing changes significantly; non-petroleum sales were up 0.4 per cent in August and are 5.1 higher than at the same point last year.

Oil refining versus motor vehicles chart

Much of that growth is the result of surging auto production. Sales of motor vehicles and parts were up 3.0 per cent compared to July, building on an extraordinary 7.4 per cent increase the previous month. Since May, auto sector manufacturing has grown by more than 15 per cent.

manufacturing sales growth by industry sector chart

For the rest of the manufacturing sector, sales were mixed in August, with losers outnumbering winners. Aerospace sales were down 3.5 per cent for the month with declines concentrated in Manitoba and Ontario. Machinery manufacturers also continued their struggles in August. Machinery sales were 1.7 per cent lower than in July – the sixth decrease in the past eight months. Producers of paper products, primary metals and fabricated metals also saw sales decline in August.

manufacturing sales by month chart

Aside from motor vehicles, there were significant gains in wood products manufacturing in August (up 5.1 per cent). Sales of chemical products (1.1 per cent) and plastics and rubber products (0.3 per cent) were also higher.

Once again, Ontario was Canada’s manufacturing growth leader in August. Led by the surge in automobile production, output in that province has soared in recent months – a welcome relief for a sector that has been stagnating since the spring of 2014. From April 2014 through May 2015, Ontario manufacturing sales grew by only 0.2 per cent. Since then, sales are up nearly seven per cent, including a 1.3 per cent increase in August.

provincial drivers of mfg growth chart

Unfortunately, Ontario’s strong performance was offset by weakness in three provinces – Quebec, Alberta and New Brunswick. In Quebec, the 1.2 per cent decline in August ($144 million) was concentrated in primary and fabricated metals. In Alberta and New Brunswick, lower refinery sales were largely responsible for the drop, although Alberta’s machinery producers are also struggling badly. Machinery sales by Alberta manufacturers fell 14.1 per cent in August and are down 34 per cent since January.

For the year as a whole, PEI is Canada’s provincial growth leader, with total sales through August up 5.9 per cent compared to the same period last year. Sales are also tracking higher in Nova Scotia (up 4.4 per cent) and BC (4.3 per cent).

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