Statistics Canada’s report this week that manufacturing shipments heated up in July – they rose 2.3% — should be taken with a distinct grain of salt for two reasons.
First, most of the strength in July came from a return to more normal shipment levels by motor vehicle manufacturers following a sharp decrease in June. Excluding the motor vehicle and parts industries, shipments advanced just 0.4% in July for the fifth gain in the last six months. As I wrote in a blog earlier this month, the increase in auto shipments is more a reflection of the Big Three becoming concerned that they had allowed their inventories to drop too low than indication of promising prospects for the rest of the year.
Second, as noted Export Development Canada economist Steven Poloz warned this week, the spending ability of the US consumer remains in doubt. as the US housing sector remains in trouble.
Since the summer there have been signs that the American consumer – stung by the collapse of the housing market and therefore their equity – is beginning to reconsider his spending.
Poloz points out that auto sales have drifted down to just above 16 million units annually, after spending some three years fluctuating around 17 million. Retail sales growth has dropped into the 3-4% range, whereas a year ago they were closer to 5-6%. Excluding autos, retail sales growth has fallen from the 8-9% range in early 2006 to 4-5% in the last six months. And net job creation has also dropped.
While it’s too early to be certain, if the American consumer does indeed become more cautious in his spending the boost in shipment levels carriers have been anticipating may still be months away.