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Pullback in manufacturing sales signals slowing Canadian economy

An employee blends ingredients during the manufacturing of various nutritional supplements at the GFR Pharma manufacturing plant in Maple Ridge, B.C., in this November, 2012, file photo. April was a tough month for Canada’s manufacturing sector, and most analysts believe that trend continued into May.

Rafal Gerszak/The Globe and Mail

April was a tough month for Canada's manufacturing sector, and most analysts believe that trend continued into May.

"We think that Tuesday's manufacturing sales [data] for May will be challenged to avoid another drop following April's large 2.4-per-cent month-over-month decline because of continued trend weakness in new orders, and soft auto exports that month," Bank of Nova Scotia economist Derek Holt wrote in a research note.

While a revived U.S. housing sector has been a boon for Canadian factories, it likely won't be enough to offset low metal prices, stagnant real output for both durable and non-durable goods, and a weaker euro zone, said Emanuella Enenajor, an analyst with CIBC World Markets.

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"For May, we don't see much relief – and news from the merchandise trade report points to another soft factory print," said Ms. Enenajor, who is forecasting a lacklustre 0.2-per-cent gain for Canadian factory shipments.

But that's positively bullish compared with the 0.8-per-cent decline that economists at Toronto-Dominion Bank foresee.

Such predictions come as no surprise to Bill Hammond, chief executive officer of Hammond Power Solutions Inc., a Canadian manufacturer of industrial transformers.

However, this year's economic slowdown did come as a bit of a shock, he said.

"No one was forecasting a slow Canadian market when we were putting our business plan together just seven or eight months ago," Mr. Hammond said.

The pullback has hit hardest in institutional government-led projects, he said.

"We're not seeing the kind of government investment in infrastructure either federally or provincially that we've had in the past and that I think we need right now to spur growth in our economy," Mr. Hammond said.

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While he sees things starting to pick up south of the border, he's is not as optimistic about the prospects for the Canadian economy in the near term.

"Quite frankly, I'm kind of surprised in a way at how quiet the federal government, the Bank of Canada and our domestic banks are with regard to the state of the Canadian economy because we see large patches of weakness coast to coast and in many markets," Mr. Hammond said.

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