Manufacturing sales fell 1.5 per cent last year, first annual drop since 2009

OTTAWA – Manufacturing sales in Canada pulled back last year for the first time since the financial crisis, but finished 2015 stronger than expected.

Statistics Canada said Tuesday that falling prices for the petroleum and coal sector helped sink sales in manufacturing, one of the largest sectors in the economy, by 1.5 per cent last year to $609.5 billion compared with nearly $619.1 billion in 2014.

Excluding petroleum and coal products, manufacturing sales grew 2.6 per cent last year.

The result for the year came as sales increased 1.2 per cent in December to $51.6 billion, the second consecutive monthly gain.

Economists had expected an increase of 0.7 per cent for the month, according to Thomson Reuters.

TD Bank economist Dina Ignjatovic noted the manufacturing sector started 2016 with some momentum.

“The low loonie and healthy demand south of the border will play a key role in propping up Canadian manufacturing,” Ignjatovic wrote in a note to clients.

“Indeed, the relationship between the exchange rate and the top performing manufacturing sectors tends to be lagged — by up to six quarters — suggesting that the biggest impact of the recent depreciation in the loonie has yet to be felt. As such, there is still significant upside for currency-sensitive sectors.”

The loonie has bounced back from the lows it hit in January, however it still remains well off the levels it has been in recent years.

The drop last year followed a move by the Bank of Canada to cut its key interest rate twice amid growing weakness in the economy.

Canada fell into recession in the first half of last year as the GDP contracted for the first two quarters of 2015, hit hard by the drop in oil prices.

Growth picked up in the third quarter, but economists have raised concerns about the last quarter of the year.

The monthly increase in December was led by growing sales for the motor vehicle and wood products industries. Sales fell for petroleum and coal products.

In constant dollar terms, sales rose 1.3 per cent, suggesting a higher volume of goods was sold.

The gains in December were relatively broad-based, Royal Bank senior economist Nathan Janzen said.

“Although the volume of sales remains down in Q4 relative to Q3, increases in the last two months are encouraging and, along with recent strengthening in exports, provide some early evidence that the economy was beginning to get a more meaningful boost from a stronger U.S. economy and weakness in the Canadian dollar,” Janzen said.

Statistics Canada said Tuesday that manufacturing sales last year increased on an annual basis in 12 out of 21 industries, with transportation equipment showing the largest gain.

Sales of motor vehicles rose 9.1 per cent as the lower loonie relative to the U.S. dollar contributed to the rise, although the number of vehicles produced was down in 2015.

Motor vehicle parts sales were up 8.9 per cent, while plastics and rubber products gained 5.4 per cent.