Canada's Orders Rebound As Does the Economy

After plunging in February, Canada's orders recouped and gained back most of those losses in one month rising by 5.2% in March. Despite what is clearly still a great deal of volatility, Canadian orders are accelerating their rate of growth from 12-months to six-months to three-months. Unfilled orders manufacturers' shipments, and inventories also accelerate on this timeline. Nondurable goods shipments accelerate on this timeline as motor vehicle shipment growth rates decelerate. Motor vehicles are in the grip of a chip shortage. Durable goods and durables excluding motor vehicles show less clear trends but removing motor vehicles leaves the durables growth rates at a point where they are close to signaling steady acceleration as well.

All the orders and shipment series have rankings that sit in the top 10th percentile to top 20th percentile based on a ranking of year-on-year rates of growth. However, unfilled orders rank in their lower 7.4 percentile and inventories rank in their 29.8 percentile. With such strength in the sector, such weak backlogs and low inventories may not make as much sense. But what this dataset seems to capture at a point in time is orders jumping and shipments flying out the door at a time that supply chains do not permit order replenishment for a restocking of goods sold. So far, shipments seem to be keeping up with orders; but those growth rates are neck-in-neck. Still, the inventory situation is not anywhere near critical as the inventory-to-sales ratio sits at its 89.7 percentile. Inventories are still relatively abundant relative to sales.

The table below takes a snapshot of sorts of the breadth of the Canadian economy to see where it stands. The far-right had column is a re-ranked average of all rankings in the table. On that basis, March and February are, across the sweep of reporting sectors, among very the best the economy has seen in the last 17 months.

The unemployment data are reverse-ranked so that their ranking values accord with economic rank in of other sectors where low rankings indicate strong data. This treatment puts the labor market metrics on the same cycle as for other metrics in the table.

What we see here is a Canadian economy that was doing fairly well ahead of the impact of the virus. At that time, it had an overall ranking of 3 and 5 in January and February ahead of impact of the virus. And it was improving from its weaker November-December readings.

Then the virus struck...

Next we see April, May and June rankings slide to their lows in most cases; for mining, the lows came a bit later…

But now Canada is seeing its best housing starts, its strongest imports and over the last three months its strongest exports. As for signaling, the highest LEI value as well as the highest LEI growth rate over the last 17 months is also being generated.

Revival in train
Canada has revival in train. The industrial sector is no surprise since we see that sector in recovery globally. But here in this aggregate table we also see other aspects of the economy coming back to life. However, it is also true that the level of the unemployment rate and the number unemployed are still not back to their past lows the unemployment lows are still November 2019 through February 2020. But both of these labor market metrics are up to their fifth best (fifth lowest, number of unemployed and unemployment rate) standings in March. That is a big jump from ranking 7th in February and 12th in January of this year. The job market is not back the way much of the rest of the economy is, but it is on its way and it has momentum.

Snapshot of Canada's Economy