Factory sales raise concerns about January growth

OTTAWA — Reuters

Stewart Clarke uses a small mirror and flash light to inspect components inside the D-JET's engine. Canadian manufacturers recorded their fourth month of sales declines in five months in January. (Mark Spowart For The Globe and Mail)

Canada’s hard-hit manufacturers failed to bounce back in January after a dismal year-end performance, an early sign that the economy may continue to stumble in early 2013, partially offset by more upbeat wholesale activity in the month.

Factory sales slipped 0.2 per cent in the month due to weak production in the volatile aerospace industry as well as in the auto and energy industries, Statistics Canada said on Tuesday.

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Market players had expected a 0.9 per cent gain after a 3.3 per cent tumble in December – the worst performance since May 2009 during the Great Recession.

“The rebound expected in manufacturing in January did not materialize,” said Jimmy Jean, economic strategist at Desjardins Capital Markets.

“Instead, the report points to continued weakness in autos, which combined with a sharp payback in aerospace to drive manufacturing sales in Ontario and Quebec markedly down,” he wrote in a note to clients.

Manufacturers have yet to fully recover from the 2008-09 recession even though Canada’s overall economy has long since recouped all the output and jobs lost during the crisis.

Business leaders are hoping the federal government’s budget, to be unveiled on Thursday, will extend a temporary measure that allows them to write-down investments in machinery and equipment more quickly, generating a bigger cash flow.

The sales volume of factory sales fell 0.4 per cent in January from December.

But some details of the report suggested the news might not be as bad as it appeared on the surface. New orders rose 5.1 per cent, unfilled orders jumped 5.8 per cent and inventories grew 1.7 per cent, Statscan said.

The report also showed the aerospace sector, which typically involves large orders resulting in large monthly changes, influenced much of the manufacturing data for January.

The 19.7 per cent drop in production in aerospace products and parts pushed down sales in the transportation equipment sector by 3.8 per cent in January.

The motor vehicle assembly industry slumped 3.7 per cent. Excluding autos, factory sales inched 0.1 per cent higher in the month.

Sales in the petroleum and coal product sector decreased 1.8 per cent, mostly reflecting lower volumes.

A surge in demand for computers and electronics drove up wholesale trade activity in January by 0.3 per cent from December, Statistics Canada said on Tuesday.

In volume terms, wholesale trade grew 0.5 per cent.

“The 0.5-per-cent gain in volumes goes some way to offset declines on the factory side that month, suggesting GDP likely increased in January, although we still await data from the retailing sector to confirm that view,” said Emanuella Enenajor, economist at CIBC World Markets.

January retail sales data will be released on Thursday.

An 8-per-cent jump in sales of computer and communications equipment and supplies led to a 3.2-per-cent rise overall in the machinery, equipment and supplies subsector.

Four of the seven subsectors, representing about two-thirds of wholesale trade, reported gains in the month. The second-largest increase was in personal and household goods, which rose 1.0 per cent.