For the second month in a row in January, the Canadian factory report came in weaker than expected but these disappointments come after shipments surged to an all-time high in November, explained analysts from the National Bank of Canada. 

Key Quotes:

“Manufacturing shipments fell 1.0% m/m in January to C$54.9 billion, a second consecutive decline following a healthy 3.5% increase in November. Sales contracted in 14 of the 21 broad industries surveyed including transportation equipment (-6.3%), wood manufacturing (- 4.1%), and primary metal manufacturing (-2.8%). These declines were partially offset by a rise in shipments for petroleum/coals products (+6.5%) and chemicals (+6.1%).”

“If the effect of price changes are removed, total factory sales fell 1.1% on a monthly basis. Meanwhile, real inventories were up 1.1%, causing the real inventory-to-sales ratio to rise three ticks to 1.41.”

“For the second month in a row in January, the Canadian factory report came in weaker than expected but these disappointments come after shipments surged to an all-time high in November. The transportation equipment category was the main driver of the decline in January with the motor vehicles sub-category falling 8.0% as a result of lower volumes (special plant shutdowns). Furthermore shipments in the aerospace portion tumbled 9.5% partly stemming from a stronger currency. The weakness in autos should be transitory as shutdown factories resume production.”

“On a positive note, a recovery was observed for petroleum/coal products which rebounded in January following a temporary weakness in December. Shipments for the latter category appear to be nearing levels seen before energy prices crashed in 2015. Looking on a quarterly basis, real manufacturing shipments are on track to fall 1.2% annualized in the first quarter of the year assuming no change in February and March. This follows a +3.9% reading in Q4 of 2017.”

“We expect the manufacturing sector to continue contributing to growth in 2018 assuming positive developments in NAFTA negotiations.”

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