Manufacturing sales fell 9.2% in March as factories closed due to the pandemic

Canadian manufacturing sales posted their biggest percentage drop since the financial crisis in March and economists warned sales are expected to continue to fall in April as the COVID-19 pandemic brought the economy to a crawl.

Royal Bank senior economist Nathan Janzen said Thursday that the economic data will also likely get significantly worse in April with containment measures in place for the entire month.

“Beyond that, we could see some improvement in May already with social/distancing measures easing in spots, but the drop in activity in March and April is still likely to be staggering, and entirely unprecedented in modern measured economic data,'' Janzen wrote in a brief note.

Statistics Canada reported Thursday manufacturing sales fell 9.2% to $50.8 billion in March, the lowest level since June 2016, as factories shut down due to the COVID-19 pandemic or faced sharply lower demand.

The average estimate by economists was for a drop of 5.7%, according to financial markets data firm Refinitiv.

In volumes terms, manufacturing sales fell 8.3%.

Sales fell in 17 of 21 industries led by the transportation equipment industry which plunged 26.5% in March as Canadian auto assembly plants and several parts suppliers in North America cut production. The motor vehicle subgroup saw sales fall 33.8%, while motor vehicle parts dropped 31.6%.

The petroleum and coal product industry group fell 32.2% in March.

However, sales in food manufacturing sales rose 8.2%, while paper manufacturing sales climbed 8.4% as Canadians stocked up on groceries and toilet paper. Beverage and tobacco sales rose 6.7%.

Excluding motor vehicles, parts and accessories, overall manufacturing sales were down 5.5%.

TD Bank economist Omar Abdelrahman said the easing of restrictions will provide a modest lift in May, but “the road to recovery in the sector remains cloudy.''

“Most manufacturing activity is expected to see only a gradual 'U-shaped' recovery, as the weak global macroeconomic backdrop, heightened uncertainty, and lingering weakness in the energy sector continue to weigh on shipments,'' Abdelrahman wrote.

“Only a few manufacturing industries (food, chemical products) are expected to outperform or see a quick 'V- shaped' recovery.''

Regionally, manufacturing sales were down in eight provinces in March, led by Ontario which saw a 14.3% drop and Quebec where sales fell 4.1%.

Manitoba saw sales rise 8.2%, boosted by food sales, while Nova Scotia reported a 2.9% increase on higher sales in the transportation equipment and paper industries.

In a preliminary estimate for March released last month, Statistics Canada said the economy posted a nine% decline for the month as business came to a standstill due to measures taken to slow the spread of the pandemic.

Statistics Canada is expected to release its full report on how the economy fared in March on May 29 when it will also report its results for the first quarter of the year.