Economic woes reflected in manufacturing data

Normally mundane economic data, such as Monday’s manufacturing survey reading for April, are taking on new importance in tracking the economic fallout from the Covid-19 outbreak.

Statistics Canada reported that manufacturing sales fell by a record 28.5% in April to $36.4 billion. By volume, sales dropped 26.0% in the month — also a record decline.

The national statistical agency noted that the sharp drop in April came during the first full month of physical distancing requirements, which saw manufacturing plants either slashing capacity or stopping operations completely.

In March, the value of manufacturing activity declined by 9.8% after public health curbs were introduced mid-month.

StatsCan noted that sales were down in all 21 industries tracked by the survey in April, led by sharp declines in the transportation equipment and petroleum and coal product industries.

For example, sales in transportation equipment fell by 76.4% in the month to $1.9 billion, which was a record decline.

StatsCan noted that the motor vehicle and vehicle parts industries saw declines of 97.5% and 88.1%, respectively, as, “every Canadian assembly plant ceased operations in April.”

In the petroleum and coal industry, sales dropped by a record 46.4% in April to $2.0 billion.

“The drop reflected lower prices and sales, as refineries curtailed production in response to reduced demand for energy products,” StatsCan said.” The lower demand was due to an increase in remote work and a decline in commuting, which lowered energy consumption.”

StatsCan reported that the inventory-to-sales ratio — which measures the time, in months, that would be required to exhaust inventories if sales remain at current levels — jumped from 1.74 in March to 2.41 in April.

The increase, which StatsCan said was mostly due to lower sales, “was the largest monthly increase” since the height of the financial crisis in December 2008.

The capacity utilization rate for the manufacturing sector also plunged by a record 16.4 percentage points in April to 55.9%.

StatsCan noted that many manufacturers resumed production in the second week of May, “which is expected to bolster sales compared with April.”

“The good news is that the worst is likely in the rear-view mirror,” said TD Economics in a report on the data. “Assembly plants have since reopened, and provincial economies have gradually relaxed restrictions on manufacturing activity and most other sectors since May.”

“That said, the path to recovery in the sector will be long and mired with uncertainty,” TD cautioned. “The weak and uncertain global backdrop will continue to weigh on the sector’s prospects well into 2021.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.