Manufacturing sales beat expectations in September with a 3.3 percent rebound erasing the 1.1 percent decline in August, mostly due to stronger activity as volumes increased 2.7 percent, while also benefiting from a positive price effect. Gains were widespread across 14 of 21 subsectors and nine provinces.

With September's performance, sales were up 2.8 percent in the third quarter, the largest quarterly increase since the second quarter of 2022.

Looking ahead, new orders were up 2.5 percent, only partially offset by a 1.0 percent decline in unfilled orders.

With the Bank of Canada having raised the bar for a rate cut, today's data certainly make such a move even more unlikely, at least in the short term. In the minutes of the October meeting released just yesterday, the central bank indicated the need for changes to be material compared to its outlook before it would consider another rate cut: Members would be assessing incoming data relative to their outlook. If new information led them to conclude the outlook had changed materially, they were prepared to adjust the policy interest rate, the minutes said.

It is also worth noting that the central bank's own Market Participants Survey released Monday shows that participants overwhelmingly expect the policy rate to remain at 2.25 percent through the beginning of 2027, with the first move being a rate hike in the second quarter of 2027 to 2.50 percent.

In September, manufacturing inventories were flat on the month, bringing down the inventories-to-sales to 1.70 from 1.75 in August, the lowest level since March.

The unadjusted manufacturing capacity utilization rate increased to 80.7 percent, a level last matched in October 2024.

Today's report is especially surprising considering how exposed the manufacturing sector is U.S. tariffs, with Canadian manufacturers having sold about half of their products abroad in 2024, of which 80 percent to the U.S.

Sales in transportation equipment increased 9.2 percent, with motor vehicles up 11.8 percent, including higher sales at all auto assembly plants in Ontario, some of which resuming full production after summer shutdowns and retooling in July and August.

Also leading manufacturing sales gains, petroleum and coal was up 5.3 percent, driven by both a price effect and higher volumes.

Regionally, Ontario and Quebec led the increase in September, with sales rising 3.4 percent and 2.6 percent, respectively. Ontario represents roughly 44 percent of sales and Quebec 26 percent, based on an overall value of $72.1 billion in September.

Forecasters agree with the Stats Canada preliminary estimate calling for a rebound of 1.3 percent in September after a drop of 1.0 percent in August.

Manufacturing sales for twenty-one reporting industries are the Canadian dollar level of factory shipments for manufacturing durable and nondurable goods. Volume figures are also provided. The sales statistics form part of a wide monthly report that encompasses information on new orders, backlogs and inventories and is a key input into forecasts of monthly gross domestic product (GDP).

Manufacturer's shipments represent the monetary level of factory shipments for durable and nondurable goods and are a relevant indicator for an export-oriented economy. The data are used by analysts to evaluate the economic health of manufacturing industries. They are also used as inputs to GDP and needless to say, these data are used by the central bank in its decision-making process.

The monthly survey of manufacturing of which shipments is a part, provides a broad look at manufacturing activity levels. The level of activity in manufacturing can be affected by the level of interest rates which slows or stimulates the demand for goods and production. Shipments are an indication of how busy factories have been as manufacturers work to fill orders. The data not only provide insight to demand for items such as refrigerators and cars, but also business investment such as industrial machinery, electrical machinery and computers. Because a large proportion of shipments are headed south of the border to the U.S. and include a wide variety of durables, shipments are affected by U.S. economic activity as well as the exchange rate. Although the focus in this report is on shipments, it also contains information on inventories and new and unfilled orders.

Results from this survey are used by both the private and public sectors including finance departments of the federal and provincial governments, the Bank of Canada, Industry Canada, the System of National Accounts, the manufacturing community, consultants and research organizations in Canada, the United States and abroad.