Manufacturing sales contracted one per cent in August, but beat economists’ estimates. (Credit: Cole Burston\/Bloomberg) <\/p>\n
Canada\u2019s economic growth in the third quarter could fall short of the Bank of Canada\u2019s<\/a> forecast given the latest contracting manufacturing sales data, says one economist.<\/p>\n \u201cWe continue to expect a weak third quarter, with growth on track to significantly undershoot the Bank (of Canada\u2019s) one per cent forecast,\u201d Alexandra Brown, North America economist at Capital Economics Ltd., said in a note.<\/p>\n Manufacturing sales contracted one per cent in August, according to Statistics Canada data<\/a> released on Wednesday, although that beat estimates for a 1.5 per cent drop. Their value declined 1.5 per cent for the month.<\/p>\n Manufacturing sales fell in 12 of the 21 subsectors, with transportation down the most, 5.7 per cent from July, while the food sector shrank by 1.9 per cent.<\/p>\n In the transportation sector, aerospace parts sales fell the most, by 8.6 per cent, well off a rise of 6.9 per cent in July, which was a record monthly increase. Statistics Canada said the automotive sector posted \u201clower-than-typical seasonal sales\u201d of parts and vehicles, which fell 5.2 per cent and 3.3 per cent, respectively, as production slowdowns hit plants in Ontario.<\/p>\n \u201cMarket uncertainty and the tariffs imposed by the United States have also contributed to irregular production schedules at some assembly plants,\u201d the agency said in a release.<\/p>\n Canada\u2019s automotive sector is still grappling with tariffs of 25 per cent on auto parts<\/a> that are not compliant with the Canada-United States-Mexico Agreement<\/a> and vehicles fully built in Canada.<\/p>\n But Brown said the manufacturing data for August held up better than what economists expected, providing a bit of a backstop to a rebound in factory sales in June and July, when they rose 0.3 per cent and 2.3 per cent, respectively.<\/p>\n It wasn\u2019t all rosy, however.<\/p>\n \u201cThe available data point to a weak September,\u201d he said, pointing out that new orders fell by 2.2 per cent in August and slowed to their lowest level of the year, while S&P Global Inc.\u2019s manufacturing purchasing managers index (PMI) remained mired in \u201ccontractionary territory\u201d in September.<\/p>\n The PMI dropped to a reading of 47 from 51 in February as the dangers that U.S. tariffs posed to Canada\u2019s economy took hold. A reading below 50 on the PMI, a market conditions tracker developed by the Institute for Supply Management, indicates conditions are slowing, while a reading above implies they are growing.<\/p>\n Brown said month-over-month wholesale sales, which exclude petroleum, fell 1.3 per cent in August, contradicting a Statistics Canada flash gross domestic product (GDP) estimate<\/a> for August that said wholesale sales would rise.<\/p>\n The outlook for Canada\u2019s automotive manufacturing took another hit on Wednesday when Stellantis NV said it was moving production of a Jeep SUV to the U.S. from Ontario, throwing the future of its Brampton plant and 3,000 jobs into doubt.<\/p>\n \u201cThe news that Stellantis is shifting production of its newest Jeep models to the U.S. highlights the challenges facing the sector, suggesting limited upside going forwards,\u201d Brown said.<\/p>\n One bright spot was that month-over-month aluminum sales rose 45.1 per cent in August, while primary metals sector sales rose 3.6 per cent.<\/p>\n The aluminum industry is among the sectors hardest hit by Donald Trump\u2019s tariffs and faces a 50 per cent levy.<\/p>\n Capital Economics in late September forecasted third-quarter GDP to come in at 0.8 per cent on an annualized basis.<\/p>\n