Canada manufacturing sales beat forecasts, rising 0.1% for fifth straight month

Canadian manufacturing shipments rose 0.1 percent in June to C$78.82 billion, beating trader expectations for a 0.1 percent decline and marking a fifth straight monthly gain that supports stronger-than-forecast second-quarter growth.

"Another broad-based rise in manufacturing sales in June poses upside risks to an already punchy second-quarter GDP estimate and, paired with recent strength in the labour market, leaves soft core inflation as the last bastion for our call that the Bank of Canada will delay rate hikes until 2027," Bradley Saunders, North American economist at Capital Economics, said.

On a volume basis, factory sales rose 1.2 percent in June, while year-over-year shipments climbed 14.5 percent. Statistics Canada revised May's gain to 1.6 percent from an earlier estimate of 1.3 percent. For the second quarter, manufacturing sales rose 9.3 percent nonannualized to just over C$235 billion, the highest on record. Excluding petroleum and coal products, June sales rose 2.6 percent, and volumes increased 1.2 percent.

The data arrive five days before a new 50 percent U.S. tariff on certain Canadian manufactured goods is set to take effect, representing about 5 percent of total U.S. imports from its northern neighbor. The Bank of Canada projected 2.5 percent annualized second-quarter growth, but economists had already upgraded forecasts to above 3 percent before Friday's release.

Nominal factory sales rose in 15 of 21 subsectors tracked, led by chemicals, which gained 6 percent to C$6.3 billion, and transportation equipment, up 2.8 percent to C$12.4 billion. Those gains were partly offset by a 14.1 percent decline in petroleum and coal product shipments, which Statistics Canada attributed to lower energy prices after a tentative — and later abandoned — U.S.-Iran agreement to ease shipping through the Strait of Hormuz.

Manufacturing inventories rose 0.6 percent to C$126.8 billion in June and were up 2.0 percent in the second quarter, while unfilled orders reached a record high. Manufacturing-sale volumes rose 4.2 percent in June from a year earlier.

In a separate release, Statistics Canada said wholesale sales, excluding petroleum and oilseed products, climbed 2.8 percent to C$92.5 billion in June. Machinery, equipment and supplies rose 4.8 percent to C$20.1 billion after two months of decline, while food, beverage and tobacco gained 2.8 percent to C$16.4 billion. In volume terms, wholesale sales rose 1.9 percent to a record high.

Tariff truce talks continue as 50 percent levy looms

The manufacturing data show the factory sector adjusting to the Trump administration's tariff policy. The bulk of U.S.-bound exports remain exempt under the existing U.S.-Mexico-Canada trade pact, and officials from both countries are in talks to avoid the new 50 percent levy. Sales of motor vehicle parts rose 6.2 percent month over month in June, while motor vehicles gained 0.1 percent. On a year-over-year basis, motor vehicle part sales climbed 12.8 percent and motor vehicle sales rose 20.9 percent. Wood product sales rose 5.1 percent month over month but declined 3.2 percent year over year.

"Sales of motor vehicle parts and wood products also rose strongly, and will continue to do well if Ottawa successfully lobbies for some reduction in the Trump administration's Section 232 tariffs, as media reports are suggesting," Saunders wrote.

Canada-U.S. Trade Minister Dominic LeBlanc and Chief Trade Negotiator Janice Charette were in Washington this week meeting with U.S. Trade Representative Jamieson Greer, but no deal had been reached as of Friday afternoon.

The second-quarter manufacturing performance — a 9.3 percent gain to C$235.1 billion, the highest on record — was led by petroleum and coal products, which rose 33.7 percent, and transportation equipment, up 14.7 percent. Excluding petroleum and coal, second-quarter sales rose 6.1 percent. The Bank of Canada's 2.5 percent annualized growth projection for the second quarter now looks conservative, with economists flagging upside risk to that estimate. Stronger growth reduces the case for near-term rate cuts and could support the Canadian dollar, though the tariff outcome remains the dominant swing factor for the currency and the broader economy.

This article is for informational purposes only and does not constitute investment advice.