Canadian manufacturing shipments dropped by 0.9% in February, while inventories continued to accumulate and unfilled orders decreased for the sixth consecutive month.

The drop in shipments disappointed economists who had called for a fall more around the 0.5% range, and underscores the negavtive impact of global uncertainty on the Canadian manufacturing sector.

“The details point to several points of concern, with the only point of optimism being that the drop comes on the heels of a large 3.6% gain the previous month and February was therefore a bit of a take-back effect,” says RBC Financial.

The declines were broad-based, with 16 of 21 industries reporting declines. Weakness in autos led the way, but ex-auto shipments off 0.6% too. BMO Nesbitt Burns points out that a 5.9% surge in the refined petroleum & coal category (driven by higher prices) avoided an even deeper decline in reported shipments. “Outside of this sector, shipments were off 1.4% in the month, and are now up just 1.6% from year-ago levels,” it says, noting that overall shipments are still up 4.7% y/y.

“The rest of the report was generally positive, as new orders were much firmer than expected at +1.6% following a 3.0% rise the prior month, and ex-auto orders were up by a strong 2.4%. Inventories did rise 0.9%, lifting the inventory-shipments ratio to 1.44 from 1.42 the prior month, but this is still well below the 1.48 ratio a year ago, and remains at a comfortably low level,” Nesbitt says.

RBC is notably gloomier, saying, “that there is little cause for optimism in this morning’s numbers even casting aside the excess capacity challenges facing the auto sector”. It calls the inventory-to-sales ratio “relatively high particularly in comparison to U.S. manufacturers”.

Nevertheless, Nesbitt says that GDP is on track for a modest gain of 0.1% for February, “But this follows a sturdy 0.4% rise in January, and points to some upside risk to our call of 2.4% annualized GDP growth for all of Q1.”

“While manufacturing payrolls have softened significantly in recent months, the broader trend in shipments and orders is still positive, and there is no sign of a major pullback in the factory sector in Canada,” Nesbitt concludes.