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File photos of cars for sale on the lot at the Toyota dealership in Toronto. (Fred Lum/Fred Lum/The Globe and Mail)
File photos of cars for sale on the lot at the Toyota dealership in Toronto. (Fred Lum/Fred Lum/The Globe and Mail)

Canadian manufacturers take big hit Add to ...

Canada’s manufacturing sales slumped for a second straight month in February, as the sector’s winter deep freeze deepened.

Statistics Canada reported that manufacturing sales were down 1.7 per cent on a month-over-month basis, far below economist’s consensus expectation of a modest 0.3-per-cent gain. It blamed the decline mainly on weaker auto and aerospace sales.

On a volume basis, factoring out the effects of price fluctuations, sales in February were down 2.5 per cent.

The statistical agency also revised downward its January sales calculation to a decline of 3.0 per cent, from an originally reported 1.7 per cent. Manufacturing sales, which had been expected to be a key driver of Canada’s economic recovery, have now declined in four of the past five months, and are down 6.8 per cent from their July, 2014 highs.

“The Canadian factory data was very disappointing, more so considering the sharp downward revision to the prior month,” said National Bank of Canada senior economist Krishen Rangasamy in a research note. “Real factory shipments have fallen by about 5 per cent over January and February, the biggest two-month drop since the last recession.”

However, unusually harsh winter weather may have been a key factor in the February weakness, as weather-related slowdowns have already been seen in other key North American economic indicators in the first two months of the year. The worst of the winter cold and snow hit many key eastern and central regions in February, and may have hampered business activity and hampered demand, particularly for Canadian exports to the U.S. Statscan had previously reported a 3.3-per-cent decline in export volumes in February, and auto-sector exports tumbled 15 per cent the month.

Bad weather may have disrupted shipments, and we’ll probably have a rebound sooner rather than later,” Mr. Rangasamy said.

Manufacturers of transportation equipment suffered the brunt of the February weakness, as motor vehicle sales slumped 14.9 per cent while aerospace sales plunged 25.7 per cent.

Much of the weakness in auto sales can be attributed to the retooling shutdown of the FCA Canada (formerly Chrysler Canada) minivan plant in Windsor, Ont., which began in mid-February.

“Weakness in auto sales in particular is likely to reverse going forward once retooling is complete,” said Royal Bank of Canada senior economist Nathan Janzen.

Excluding the transportation sector, sales from the rest of the manufacturing industry were up 1.2 per cent. Over all, sales were down in 10 of 21 sectors in the month, representing just over half of Canada’s manufacturing industry.

Manufacturers’ new orders plunged 17.7 per cent in February, again due mainly to transportation equipment makers, whose orders plummeted 56.6 per cent from January levels. That included a 92.8-per-cent nosedive in the aerospace segment, which had skyrocketed in January.

“Most economic activity in the [aerospace] industry is conducted in U.S. dollars, therefore the measurement of production in the industry is highly sensitive to movements in the value of the Canadian dollar,” Statscan said. “In January, a sharp decline in the value of the Canadian dollar contributed to the increased value of production in the industry. This effect was not observed in February, as the value of the Canadian dollar was relatively stable.”

Unfilled orders also fell 1.2 per cent in the month, also driven by transportation declines.

Meanwhile, inventories rose 0.9 per cent, led by motor vehicles. The inventory-to-sales ratio rose to 1.44, the highest since 2009 – suggesting manufacturers may need to work down their stockpiles to fill future demand before they will consider ramping up production.

Economists said the February manufacturing weakness suggests downside risk to Canadian first-quarter gross domestic product growth estimates, which currently stand at about 1 per cent, although some economists believe growth in the quarter may have been near zero. The Bank of Canada will issue new quarterly GDP growth estimates this morning, in its quarterly Monetary Policy Report.

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