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Manufacturing shipments rose 1.4% in May in Canada to a record level. According to National Bank of Canada’s analyst, Kyle Dahms, the report was better-than-expected but warns that factory output could subtract to growth in Q2 .

Key Quotes:

“The Canadian factory report was much stronger than expected in May following a disappointing print in April. The largest increases were focalized in select industries with chemical products and machinery leading the charge and rising to their highest respective levels on record. The rise in machinery equipment shipments came after three months of drawbacks. The headline number was held back by petroleum/coal products and transportation equipment.”

“Real inventories fell in the month and, combined with the uptick in sales, brought the real inventory to sales ratio down a couple ticks. A decline in that ratio is comforting following the large upswing in April and should hold given rising unfilled orders.”

“After having contributed to growth in the first quarter, real manufacturing shipments are on track to fall 0.8% annualized in Q2 assuming no change in June. However, that drop may not translate into a negative contribution to growth from the manufacturing sector as a significant buildup in inventories could provide an offset.”