Drop in petro products drives manufacturing sales down in June

Manufacturing sales in Canada fell in June, dragged lower by falling oil prices and refinery shutdowns.

 Statistics Canada said Thursday that a 10.6 per cent drop in sales of petroleum and coal products pushed down overall sales to $48.9 billion in June, 0.4 per cent lower than in the previous month.

Economists had been expecting a gain of 0.3 per cent.

“Following the two previous monthly declines, some manufacturing sales growth was expected in June, so despite some upward revisions, this reading is a disappointment,” TD Bank senior economist Jacques Marcil wrote in a note to clients.

“On the bright side though, most of the decline is centred in only one sector, petroleum and coal products, which was facing short-term, exceptional circumstances. Another silver lining is that the tough month faced by that industry led to lower inventories.”

Statistics Canada reported that 12 of 21 industries reported higher sales in June, helped by transportation equipment sales which increased to their highest level since November 2007, rising 1.7 per cent to $9.2 billion.

Motor vehicle sales also edged up and, compared with June 2011, increased 40.2 per cent as the industry recovered from the supply chain disruptions related to tsunami that year.

Economist David Madani of Capital Economics noted that excluding the petroleum and coal figures, manufacturing sales actually rose by 1.1 per cent, month-over-month.

“Despite the uncertain global economic outlook, Canada’s manufacturing sector has continued to expand thanks to continued growth in U.S. industrial production,” Madani said.

“But more timely indicators such as the U.S. Empire State index suggest that manufacturing sales growth may slow in the coming months.”

Sales were down in six provinces in June, with the largest declines posted in Alberta and New Brunswick.

Inventories also fell in June by 1.7 per cent to $64.8 billion, while unfilled orders rose 2.2 per cent to $64.3 billion.

Marcil noted that TD expects manufacturing sales in Canada to expand moderately in the second half of the year.

“The ongoing U.S. expansion will continue to support export demand although the high Canadian dollar still acts as a limiting factor for manufacturing exports. Domestically, manufacturing sales growth is likely to remain respectable,” he wrote.

The dip in manufacturing sales came as those outside the country reduced their holdings of Canadian securities in June in the biggest decline of the past 3 1/2 years, following two straight months of acquisitions.

Statistics Canada said foreign investors reduced their holdings of Canadian bonds by $7.8 billion in June, the largest drop since December 2008.

The agency attributed the drop to a $17.5-billion retirement of maturing Canadian dollar denominated bonds from the federal government and its enterprises.

That was offset by non-resident investors purchasing $800 million of Canadian money market instruments in June, though that was down from $7.3 billion in May.

At the same time, non-residents sold a net $900 million of Canadian stocks in June, following a $2.1 billion net investment in May.

Canadian investors added $3.9 billion of foreign securities to their portfolio, mainly U.S. government bonds.