Manufacturing : Strong Sales Could Lead to Record Gains

Looking at the first three months of 2016, vehicle sales in Canada turned out to be much stronger than we had initially been expecting.

First-quarter numbers mean an even better forecast.

It’s not ofen that we like to be mistaken, but we’re fne with it this time around. Looking at the frst three months of 2016, vehicle sales in Canada turned out to be much stronger than we had initially been expecting. Te sales pace has increased sharply to an annualized rate of about 2 million units, which is up from the 1.9 million were sold last year. Afer the level that we saw for 2015, we didn’t think it could keep going up, and so we were expecting to see fat performance this year. But as a result of this frst quarter’s data, we have increased our 2016 full-year forecast to 1.96 million vehicles, up from the 1.90 million that we originally anticipated.

The auto industry surges ahead

A large reason for this increase is that the non-resource sector is doing quite well in Canada, especially the auto industry, which is now almost singlehandedly lifing manufacturing overall across the country. The provinces posting the strongest gains in vehicle sales are those where manufacturing is strong, including Ontario, Quebec, and British Columbia. Fleet volumes have been especially robust, while pickup truck volumes have surged by nearly 20 percent this year, taking a record share of the Canadian auto market. Auto industry shipments have surged in the opening months of the year, and they’re responsible for nearly 80 percent of the overall manufacturing improvement in Canada. Most of that is in Ontario because we had some retooling last year in the assembly plants. As well, Canada primarily produces crossover utility vehicles, and that’s the type of vehicle that’s in demand in North America and across the globe right now. The fact that we’re making these CUVs—they account for nearly two-thirds of overall production at Canadian assembly plants— means that our country is really in the sweet spot in producing what the world wants.

More gains than the U.S.

In addition to vehicle production ramping up, we’re also seeing strong gains from the parts suppliers. In particular, payroll for the auto parts industry has increased by about 5 percent over the past year, and that’s the strongest it’s been since 2000. It’s also double the advance that the United States is experiencing. Nearly 2,000 new workers were hired at Canadian plants in recent months, especially in southwestern Ontario, where the region is expected to approach a record 1.3 million units this year. Production is strong across all of North America, but the sharp currency depreciation we’ve seen over the past several years has considerably helped our competitive position. Canadian auto parts shipments have posted back-to-back double-digit gains in the past two years, something that hasn’t happened since the late 1990s. If this continues, volumes this year could climb to all-time highs. Our dollar has declined in excess of 25 percent over the last several years, and that makes a signifcant diference. Employment in the auto parts sector is growing faster in Canada than it is in the United States, and that’s a signifcant change. We were typically in third place but now, in terms of auto parts production, it’s Mexico, then Canada, and then the U.S. Mexico is much stronger than we are, but when we’re looking at Canada’s share of the global total, we’re edging up and currently are at our highest level since 2008.

From shortfalls to surplus

Te auto sector has reclaimed its title as Canada’s largest exporter, overtaking the oil and gas industry. Our exports have been so strong that the sector swung to a trade surplus earlier this year, a sharp reversal from the shortfalls we saw in 2013 and 2014, which were in excess of $16 billion. In January 2016, auto industry shipments were up 29 percent year-over-year. Globally, car sales strengthened in February and the gain was broad-based, with only Brazil and Russia still posting sharply lower volumes. Car sales in Western Europe in February rose 14 percent from a year earlier, and that’s the third doubledigit advance there in the past four months. In March, auto sales rose by 13 percent year-over-year in Mexico, one of the best performances among the world’s major auto markets, while the U.S. was up by 3 percent. A couple of months ago, everyone was afraid that the global economy was headed for a sharp downturn, but the numbers just don’t support that. Markets that were plunging a few months ago are headed to record numbers again. As strong as 2015 was, it looks like 2016 will be even better.

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