Canada: Recovery likely continued into July, but pace to slow – RBC

Canadian manufacturing sales jumped a record 20.7% in June. Nathan Janzen, Senior Economist at RBC Economics, points out the recent significant gains in manufacturing sales and other economic indicators, has been a bounce-back from unprecedented declines. They that beyond this initial bounce, the pace of recovery will likely moderate.

Key Quotes: 

“The nearly 21% jump in manufacturing sales built on a close-to 12% increase in May. The bounce-back in sales to-date has been somewhat stronger-than-expected – the June increase itself was a little stronger than Statistics Canada’s preliminary estimate of a 16.8% increase.”

“Much of the initial recovery in manufacturing sales to-date, as in the broader economy and labour markets, has been a bounce-back from unprecedented declines into April as virus containment measures eased. Beyond this initial bounce, the pace of recovery will still likely moderate.”

“Given tight links between the Canadian and US manufacturing sectors, the difficulties south of the border in getting additional government stimulus spending passed and the still elevated pace of virus spread there are added downside risks. Persistently weak investment in the oil & gas sector will also act as a longer-lived drag on manufacturing output. The near-term bounce-back in economic activity has been encouraging, but the economy is still operating well-below capacity, and very likely still will be at the end of the year.”