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Canadian manufacturing, back on track?

Once again, a month does not a trend make.  It is often forgotten that although manufacturing is a smaller percentage of Canada’s GDP (than it was just 5 years ago) it is still an important component (around 13% of GDP), and about 15% of Canada’s export (granted a good portion of that are cars destined to the U.S. market).

Nevertheless, Canadian’s manufacturing performance, in light of the strong CAD, is impressive.  So when the CAD was at its highest level manufacturing exports rose by almost 2%, reversing the sales losses of February.  I am looking forward to Canadian productivity numbers (especially those that strip out the service industry) to see if once again, despite the absence of Canadian industrial policy, Canada’s manufacturing sector found its own way to increase productivity (without the ineffectual hand of various levels of government).  

(source: StatsCan)

The increase was across the board (transport equipment +6.3% was half the total gain).  Overall 15 of 21 segments saw increase in sales.  On the other side of the equation, inventories rose in line with sales.  Two sectors saw out of proportion inventory increases: energy segment (+21%), and in fabricated metals (+6.3%).  Order backlog has risen again, indicating that Canadian companies are still doing well in a strong CAD environment.  It does beg the question, [Note; for some reason inventory levels include raw material stocks in the energy sector (Coal/oil/gas), hence the inclusion in the discussion here]

One question which begs to be asked is if oil prices are rising (were rising actually) why are stocks also rising especially since the oil & gas complex is in backwardation?  Could the comments from the Saudi oil minister be correct, and could the recent increase in oil prices (via the futures contract market) are in the grip of speculators?  There is no doubt that the recent increase in margin requirements took the “sail out” of the energy market, an indication as to how frothy the future market was, since traders could not afford the additional margins (a function of increased volatility BTW, and little else).  Today, oil is trading around $97 – 15% below its $114 peak.  [Ok end of RANT on investor speculation on the futures market for energy/metals etc]

Overall, it would seem to be a good report for Canada – don’t know what the “pros” will make of this.  One inescapable fact is that Canadian manufacturing industry (that has survived) has been able to thrive in an environment of a strong CAD.

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