MNI DATA IMPACT: Canada Q2 Factory Sales Lowest Since 2009

Canada's factory sales plunged to the lowest in more than a decade in the second quarter, suggesting a difficult comeback from the Covid-19 shutdown.

Sales dropped a record 23% from April to June, or to CAD125 billion from CAD162 billion, Statistics Canada said Friday from Ottawa. The dollar value is the lowest since the third quarter of 2009 around the country's last recession, and included a 51% drop in transport equipment as auto plants shut down and a 29% tumble in petroleum and coal reflecting a global crude oil supply glut.

While the quarter ended with a record monthly gain of 21% for June to CAD48.7 billion, sales remain 13% below where they were in February before the pandemic took hold in Canada. Factory utilization also remains 8pps below the level of 81.3% set in June 2019, a level that already reflected weakness as Canadian companies struggled to win orders in what at the time was the longest U.S. expansion on record.

Future sales are threatened by weak demand from the U.S. where some states are slowing re-openings as coronavirus lingers, the border with Canada remains except for essential supplies, and President Donald Trump has renewed protectionism with 10% aluminum tariffs. Canada sells 75% of its exports to the U.S. including almost its entire automobile and crude oil production.

Harder Road From Here

Some of the easiest gains have already been made up in June, with auto plants re-opening after being shut down due to Covid-19 health orders, and oil prices coming off historic weakness earlier this year as Russia and Saudi Arabia unleashed oil supplies as the global economy cratered. Petroleum and coal sales jumped 32% on the month, still down 47% from a year earlier, and motor vehicle sales jumped 282% to remain 26% below June 2019.

Excluding autos, sales rose far less in June, by 10%, Statistics Canada said.

But future sales growth appears weak, with new orders down 16% from a year earlier and unfilled orders down 5.3%.

"Given tight links between the Canadian and U.S. manufacturing sectors, the difficulties south of the border in getting additional government stimulus spending passed and the still elevated pace of virus spread there are added downside risks," Royal Bank of Canada senior economist Nathan Janzen wrote in a research note. "The economy is still operating well-below capacity, and very likely still will be at the end of the year."