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As manufacturing goes, so goes GDP (but we hope not)

ROB Insight is a premium commentary product offering rapid analysis of business and economic news, corporate strategy and policy, published throughout the business day.

In light of Friday's abysmal manufacturing sales report, Canadians should brace for bad news when gross domestic product data for December is announced March 1.

Statistics Canada reported December manufacturing sales had declined by 3.1 per cent in December, the sharpest decline since the recession of May 2009. An unwelcome 15.4 per cent slide in motor vehicle sales was the main culprit, although 16 of 21 industries suffered from falling demand.

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RBC Economics hinted that the results put the Canadian economy at risk for contraction for December, writing "this points to some downside risk to our monitoring for GDP growth to remain unchanged in December following a 0.3 per cent jump in November."

The 4.4 per cent monthly decline in the new orders portion of Friday's report is particularly alarming, since new orders are considered the best gauge of future economic activity. Economists, however, expect a January recovery in auto production, as signs continue to suggest that U.S. demand is strong.

The tone of economists' notes Friday morning reflected a degree of confusion as to what is really happening in the domestic economy. Not one of the 17 economists surveyed by Bloomberg provided an estimate low enough to meet the actual report. Investors can hope for a positive surprise with the release of wholesale sales and retail sales data next week, but the previews are not encouraging – the average economist estimates are for a decline of 0.4 per cent and 0.5 per cent respectively.

Scott Barlow is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights, and follow Scott on Twitter at @SBarlow_ROB.

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About the Author
Market Strategist

Scott Barlow is The Globe's in-house market strategist. He is a 20-year veteran of Canadian investment banks, including Merrill Lynch Canada, CIBC Wood Gundy and Macquarie Private Wealth (MPW). He was a highly ranked mutual fund analyst for 10 years and then, most recently, the head of a financial adviser support team at MPW. More


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