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In U.S. demand, Canadian manufacturers see light at end of tunnel

Statscan said Friday that factory sales fell 2.4 per cent in April, the biggest decline in nearly four years.

Lars Hagberg/The Globe and Mail

A pickup in U.S. demand should help nudge Canada's manufacturers out of their slump, but emerging fully from the doldrums will take months.

A weaker Canadian dollar will also help lift the sector, analysts said, welcome news after a report Friday showed the country's factories in April suffered their fourth hit in five months. Sales fell 2.4 per cent, Statistics Canada said Friday, marking the fastest decline since August 2009.

The showing by the manufacturers suggests overall economic growth will be weak this quarter.

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Economist Dina Ignjatovic said the longer-term outlook is better, projecting that stronger growth in the United States in the second half of this year and into next will boost fortunes.

"The manufacturing sector will likely take a breather in the near term, given the declines seen in the forward-looking indicators and the fact the American economy – where a large chunk of Canada's manufactured products are destined – is expected to have ratcheted down in the second quarter," she said.

"However, the longer-term outlook for manufacturing sales remains bright. An uptick in economic activity in the U.S. during the second half of this year and in 2014 should translate into increased demand for Canadian-made goods. Moreover, the expected depreciation in the Canadian dollar in the coming quarters will also be a welcome development for manufacturers."

Friday's report underscores a drop in sales across the majority of manufacturing industries, and suggests overall growth for the current quarter will be weak.

The drop in April shipments – by volume, sales fell 1.6 per cent – was disappointing given that economists had expected to see an increase of 0.3 per cent.

Statscan said lower shipments of oil, coal and primary metals led the decline .

Sales fell in 13 of 21 sectors measured, accounting for 86 per cent of the industry, and the manufacturing centres of Quebec and Ontario were hit hardest, to the tune of 6.8 per cent and 1.3 per cent, respectively.

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An 8.8-per-cent drop in sales of petroleum and coal products in April was partly due to maintenance at some refineries.

Inventories rose again, for the fourth month in a row, by 0.6 per cent, to reach their highest since the agency began tracking such data in 1992. That was driven by aerospace, computers and electronic products.

The inventory-to-sales ratio rose to 1.43 from 1.39 in March, while the level of unfilled orders slipped 0.1 per cent, the second dip in a row but still marking the fourth-highest on record.

"The drop in the volume of sales in April was much larger than expected and, disappointingly, leaves the measure down 3.5 per cent from a year ago," Royal Bank of Canada economist Nathan Janzen said. "It is likely that the manufacturing component of GDP will decline in April although the pace of the decline is likely to be relatively modest."

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