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Marc Tremblay assembles goalie pads at Brian's Custom Sports in Kingsville, Ontario, December 21, 2011. (GEOFF ROBINS/GEOFF ROBINS for The Globe and Mail)
Marc Tremblay assembles goalie pads at Brian's Custom Sports in Kingsville, Ontario, December 21, 2011. (GEOFF ROBINS/GEOFF ROBINS for The Globe and Mail)

Factory sales see biggest drop since 2009 Add to ...

Canadian manufacturers ended 2012 on a dismal note, registering the biggest monthly decrease in sales since the Great Recession, a drop that suggests growth again disappointed in the fourth quarter.

Manufacturing sales fell 3.1 per cent in December from November, the sharpest decline since May 2009 in seasonally adjusted terms, due mainly to weaker auto production but also to lower sales in 16 of 21 industries, Statistics Canada said on Friday.

The news drove down the Canadian dollar and disappointed investors, who expected a milder 0.8-per-cent decrease. Factory sales rose 1.9 per cent in November but struggled to gain traction overall last year.

“You can’t really paint a more negative picture of Canada’s manufacturing sector than what we saw with the December shipments report,” said Sal Guatieri, senior economist at BMO Capital Markets.

Manufacturers have been hard hit by a strong Canadian dollar and tepid U.S. demand for their products, and they have yet to see sales climb back to pre-recession levels.

“The report clearly underscores that Canadian manufacturers need U.S. consumers and businesses to ramp up their spending to see some revival this year,” said Guatieri.

Excluding the heavyweight auto sector, sales fell 1.8 per cent, dragged down by chemicals, energy products and fabricated metals.

In volume terms, overall sales sank 3.8 per cent.

The December performance rounded off a mediocre year for the sector, based mainly in the province Ontario. In 2012 as a whole, factory sales rose 3.4 per cent, less than half the 7.8 per cent growth of 2011.

Economists scaled back their forecasts for December and fourth-quarter economic growth after the report, which also lent credibility to the Bank of Canada’s message last month that interest rate increases are less imminent.

Indeed, the central bank’s forecast of 1 per cent annualized growth in the fourth quarter now looks high.

“Real GDP is expected to spend another quarter close to its dismal 0.6 per cent advance in Q3, which speaks to the combination of persistent headwinds and negative shocks that undercut growth around the world through the end of last year,” said David Tulk, chief macro strategist for Canada at TD Securities.

The International Monetary Fund predicted on Thursday that Canada’s growth rate would gradually speed up in 2013 as the U.S. recovery gains momentum. But it warned that U.S. growth alone would not be enough to close Canada’s current account deficit, as exporters will continue to grapple with a strong currency, poor productivity and competition from China.

In December, sales by motor vehicle assembly plants plummeted 15.4 per cent. While that sector normally undergoes temporary plant shutdowns in the final month of the year, Statscan said the decline in December 2012 was greater than usually observed.

New orders for manufactured goods fell 4.4 per cent in December while unfilled orders increased by 2.6 per cent.

Inventories dropped 1 per cent and the inventory-to-sales ratio, a measure of how many months it would take to exhaust stock, rose to 1.34 from 1.32 in November.

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