Canada’s manufacturing and wholesale sales rebound in November

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Canada got some rare good economic news Wednesday morning, just hours before a key interest-rate decision by the Bank of Canada.

With the central bank pondering whether to cut its key rate by another quarter-percentage-point to help stimulate Canada's ailing economy, two reports from Statistics Canada – on manufacturing and wholesale trade – showed an encouraging rebound in sales in November. Manufacturers' sales rose 1.0 per cent month over month, ending a three-month string of declines, while wholesale sales gained 1.8 per cent, snapping a four-month skid.

Both gains were bigger than economists had expected, and both were driven by stronger volumes, as prices were relatively flat.

The news came too late to influence the Bank of Canada's rate decision, as the central bank already had its mid-morning announcement ready for publication in advance of the manufacturing and wholesale reports. The central bank decided to keep its key interest rate unchanged at 0.5 per cent, despite reducing its forecast for economic growth in 2016.

Nevertheless, the two reports suggest that the country's non-energy economy may have regained strength after stumbling into autumn, as the weakness in the Canadian dollar continues to aid non-energy manufacturing exporters.

But economists said the new data aren't enough to change the view that Canada's economy grew little if at all in the final quarter of 2015 – a key reason, along with the deepening slump in oil prices to start the year, why many experts are calling on the Bank of Canada to cut its key rate.

"The Canadian data were much better than expected. The volume gains in both manufacturing and wholesaling should help lift GDP in November by 0.2 per cent or so. That, however, won't change the picture for Q4 as a whole. Unless we got a Christmas miracle with surging December output, Q4 GDP is likely to end up close to flat," said Krishen Rangasamy, senior economist at National Bank of Canada, in a research note.

"Despite the better than expected results this morning, the market's attention will be taken by the renewed turmoil in oil, and [Bank of Canada] Governor [Stephen] Poloz's decision," said Canadian Imperial Bank of Commerce economist Nick Exarhos in a research note.

The rebound in both manufacturing and wholesale was led by the auto sector. Motor vehicle sales were up 3.8 per cent at the manufacturing level, while at the wholesale level they jumped 6.5 per cent. In both cases, the gains reversed months of declines.

But the gains in manufacturing were relatively broad-based, with 15 of 21 sectors rising. Most of the declines were in commodity-related sectors, such as petroleum and coal products (down 0.9 per cent) and primary metals (down 1.2 per cent), which continued to be strained by lower prices. Sales for durable-goods manufacturers rose 1.9 per cent, but non-durable sales were flat.

New orders in manufacturing rose 3.5 per cent, a healthy sign for future demand. Unfilled orders dipped 0.3 per cent. Inventories held steady, Statscan said.

Among wholesalers, sales were higher in four of the seven main industry segments, representing nearly two-thirds of the wholesale sector. In addition to motor vehicles, building materials and food also posted solid gains. But sales of machinery and equipment dipped 1 per cent, reversing course after two months of gains.