Canada’s manufacturing sales increased 4.5% in January

I don’t know if this proves anything about Canadian productivity, but it remains that Canadian manufacturing is firing on all cylinders!  In constant dollar, the sales number were a bit higher at 5.5% growth, an indication that there is some margin compression here, which is not surprising if one considers that the CAD has gone from parity to 1.03 in the space of a few weeks.

(Source:  StatsCan)

Moreover, the advance was broad base, with 17 of 21 industry showing increase in sales (but the big winners were cars, car parts, and aerospace).  Part of the January increase is weather related (December was brutal in the U.S.) the automotive segment saw a 26% increase in January (accounts for 10% of all Canadian manufacturing sales), but the aerospace growth of 25% had nothing to do with weather (3% of Canada’s manufacturing sales) and this increase was the single largest for the past 18 months.

In terms of geographic concentration the big winners were Ontario (+5.8%) and Quebec (+7.4%).  But since these are the most exposed provinces to the biggest “winners” segments this outcome is not surprising.

These buoyant sales level have increased demand expectation, and inventories have also risen to meet future demand, but is also a reflection that increase in sales will automatically translate into higher inventories (although the automobile sector saw a 25% drop in inventories – also the result of poor December 2010 weather conditions – which lead to inventory draw downs).

This data point should give the BoC additional ammunition to raise interest rates in June.  The big imponderable is the situation in Japan, and PPI inflation south of the border (rising 1.6% when the market was expecting 0.6%...)