B.C. manufacturing shipments showed life in January with the first gain since June 2018.
Factories’ sales rose 2.4% from December to a seasonally adjusted $4.66 billion. This was the highest level since September. However, it is too soon to say if it marks the start of a sustained rebound. Year-over-year, shipment growth remained solid at 6.3%.
January’s gain was driven mostly by a 2.8% increase in durable goods production, which comprised 70% of the increase. This compared with a 1.7% increase in non-durable goods. Of the former, wood production rebounded after a sharp December contraction but remained 15% below 2018 peak production. Transportation and equipment jumped 35% to act as a key driver of the monthly increase while machinery shipments jumped 7.6%. Primary metal manufacturing declined 14% from January.
Growth in manufacturing is expected to be mild. A global growth slowdown and weak national performance will constrain export demand, although a low Canadian dollar will help buoy the sector. Forestry needs stronger demand for housing both domestically and abroad, which is not forthcoming. Real manufacturing output is forecast to rise 1% this year, which will constrain manufacturing product sales to 3%, factoring in price levels.
Aligning with manufacturing trends, B.C.’s forestry sector slowed in late 2018, according to the latest softwood lumber production figures from Statistics Canada. Annual production fell 4.3% to 28.9 million cubic metres, marking a second straight annual decline and the weakest performance since 2011.
Sawmill manufacturing sales fell 3.3% to $7.86 billion. However, the decline was offset by stronger sales in veneer and engineered wood products (up 22%) and other wood products (up 8.6%). Total wood product manufacturing rose 3.3% to $12.6 billion. Shipments of paper products were robust with growth of 20.4% in 2018.
Declining lumber activity reflects weaker exports. Dollar-volume lumber exports to international markets fell 2.8% last year, with real shipments down 5%. The latter followed a 9% decline in 2017. Real shipments to the U.S. fell 3.9% and contributed to half of the overall decline.
Factors dragging on lumber demand include subdued U.S. housing starts, deterioration in global growth, specifically in China, and reallocation of demand in some countries.•
Bryan Yu is deputy chief economist at Central 1 Credit Union.
