Canadian manufacturing activity unexpectedly cooled in October

Manufacturing sales unexpectedly slipped in October, dipping by 0.4 per cent to $53.5 billion following two consecutive monthly increases as the auto sector weighed on the result, Statistics Canada reported Friday.

Economists had been looking for an increase in sales for the month of one per cent.

After factoring for inflation, sales decreased 1.5 per cent in October, reflecting a lower volume of goods sold.

Sales fell in eight  of 21 industries, with sales of motor vehicles and other transportation equipment accounting for most of the month's decline. Factoring out those two industries, manufacturing sales increased 0.5 per cent, Statistics Canada reported.

Motor vehicle industry sales slumped by 6.7 per cent to $4.6 billion for a second consecutive monthly decrease.

The drop was partly due to decreased production after shutdowns of some assembly plants in October. Sales volume in the industry fell by 7.6 per cent for the month. A month-long strike at the GM CAMI auto plant in Ontario ended in the middle of the month.

"Manufacturing volumes were held back in October by disruptions in the auto sector, which have since been resolved," TD economist Dina Ignjatovic said in a commentary. "As such, auto manufacturing should bounce back strongly over the remainder of 2018, helping to lift overall output in the sector."

Sales were also down in the chemical and machinery industries in October, while increases were seen for the  petroleum and coal, and wood product industries, Statistics Canada said.

"Outside the auto sector, forward looking indicators point to a better performance in the coming months," Ignjatovic said. "Moreover, with economic activity in the U.S. expected to pick up, demand for Canadian-made goods should follow suit, supporting factory production in Canada."

RBC senior economist Nathan Janzen said challenges remain in the manufacturing sector going forward, "particularly given the possibility for a 'bad' outcome from ongoing NAFTA renegotiations."

"Nonetheless, there are also positives in terms of stronger growth in the U.S. industrial sector, which tends to import a lot from Canadian manufacturers, and a stronger domestic Canadian economy," Janzen said in a commentary.