The 1.3-per cent drop in manufacturing sales abroad, reversing much of the previous month’s gain, was broadly in line with what economists had warned would happen in a month when the full effects of the Japanese earthquake were most likely to be felt.Peter Power/The Globe and Mail
As Canadian manufacturers hustle to do business with a broader range of trading partners, this morning's report on April factory shipments serves as a glaring reminder that even the most reliable supply chains can carry risks.
The 1.3-per cent drop in manufacturing sales abroad, reversing much of the previous month's gain, was broadly in line with what economists had warned would happen in a month when the full effects of the Japanese earthquake were most likely to be felt.
That said, when coupled with last week's dismal trade numbers from Statistics Canada -- which not only reported a deficit for April but also revised its reports from February and March to show shortfalls instead of surpluses -- some economists said Japan's disasters have clearly had an even bigger impact than they expected. In the April manufacturing report, a 7.8-per cent plunge in the transportation sector was the main culprit, and this was due almost entirely to shortages of parts at auto factories.
Excluding vehicles, parts and accessories, Canadian factory sales still fell, but by just 0.5 per cent. Not exactly encouraging, but a sign that the industry's recovery will keep chugging along once the Japan effect peters out, even with the strong currency and a more tentative global backdrop.
``Volatility and uncertainty in this economic recovery are not exactly new developments and Canadian manufacturers have shown a considerable amount of resilience throughout these past two years,'' Francis Fong, an economist with TD, said in a note to clients.
That may prove a shade optimistic. A manufacturing report out of the United States on Wednesday, which gauges the health of factories in the New York region, showed an unexpected decline during the current month, an ominous sign that the sector is still grappling with parts shortages linked to the Tohoku earthquake and the tsunamis and nuclear disaster that followed.
Bank of Canada Governor Mark Carney, who speaks later today in Vancouver on the housing market, said two months ago that economic growth would slow to an annual pace of 2 per cent in the second quarter from the 3.9-per cent pace clocked between January and March, but then growth will pick up a bit after the temporary supply-chain disruptions are unwound.
Let's hope he's right.
Not least because investors seem increasingly skittish these days, and any more softer-than-expected data could trigger a sell-off that worsens the current slowdown and turns market fears about something more troubling into a self-fulfilling prophecy. Already, Avery Shenfeld, chief economist at CIBC World Markets, is saying he will ``likely be downgrading'' his last estimate of second-quarter growth, which as it stands is lower than Mr. Carney's, at 1.8 per cent.
This week, losses on the Toronto Stock Exchange were raising fears of what investors consider full-on ``correction'' territory, The Globe and Mail's David Parkinson reported. Strategists blamed the dips on the pile of negative news this spring, from Japan to Libya to China's battle with inflation to Europe's worsening debt crisis to America's vexing unemployment problem.
When the Paris-based Organization for Economic Co-operation and Development released its composite leading indicator for April, it showed that many major economies are losing momentum. However, the OECD decided not to include Japan in its reading, citing the exceptional circumstances its economy has been through.
If things are nearly as choppy later this summer when Canada's ugly second-quarter GDP numbers are due to emerge, policy makers might be wishing they could skip reporting those numbers, too.