Following the release of weaker manufacturing data, the forecast for second quarter GDP from the Bank of Nova Scotia’s automated model headed lower too.
Statistics Canada said manufacturing sales for May were down 2.0% to $71.6 billion, following seven straight monthly gains.
While the decline was not a surprise, as StatsCan’s flash guidance signalled a 2.4% drop, in a research note Scotiabank said that “the magnitude of the fall was larger than expected once the effects of price increases are stripped out.”
StatsCan reported that, while the value of sales dropped 2.0%, the volume of sales was down 3.9% month over month.
“As a result, the outlook for growth in May deteriorated,” Scotiabank said, noting that its model lowered its second quarter GDP forecast from 3.82% to 3.68% — slightly weaker than the Bank of Canada’s latest forecast.
StatsCan reported that 11 of 21 industries saw lower monthly sales, led by a 31.9% drop in the auto sector, amid semiconductor shortages and auto assembly plant retooling.
On the upside, the petroleum and coal industry reported record sales of $10.9 billion in May, “largely on higher prices,” StatsCan said.
Machinery sales rose 3.3% in May to a record high of $4.0 billion.
The data also showed a modest increase in the inventory-to-sales ratio, and the capacity utilization rate declined from 79.1% in April to 78.0% in May.
Additionally, the total value of unfilled orders declined 0.8% to $103.0 billion in May, after rising for six straight months.
“While the uncertainty around the health of supply chains and the logistical restructuring due to the ongoing geopolitical crisis may encourage precautionary inventory accumulation, the high level of inventories could pose a downside risk to manufacturing activity in the quarters ahead,” Scotiabank noted.
With Q2 growth looking a bit weaker, “the outlook for the remainder of 2022 is clouded by significant uncertainty, especially as downside risks to global growth intensify,” Scotiabank said.