OTTAWA – Canada’s factory sector churned out disappointing results in August, contracting for the first time this year as sales dipped 3.3 per cent to $52.1 billion.
Statistics Canada’s latest manufacturing survey, released Thursday, said about half the loss was due to a drop in auto sector sales. Without motor vehicles and parts in the mix, manufacturing sales slid 1.9 per cent.
Economists had expected a drop of 1.6 per cent, according to Thomson Reuters.
The monthly results followed a promising July survey, which said the sector had hit record sales and topped expectations with an increase of 2.5 per cent. Manufacturing sales had been trending upwards since January.
But August’s sharp drop has essentially wiped out June and July’s gains.
One economist said he wasn’t surprised by the drop off and he credited climbing sales of previous months to a bounce back from the unseasonably cold winter.
“The manufacturing sector is growing, though the pace of growth perhaps is a bit lacklustre,” said David Madani, chief economist with Capital Economics.
“My expectation is that manufacturing sales growth will be fairly positive. There will be growth supported by the U.S. economy, but the pace will be fairly unspectacular.”
Madani said Canadian firms continue to face a big hurdle: a loonie that is still relatively high.
Even if the Canadian dollar continues its slide, he said the sector would likely take a long time to turn things around.
“There will be quite possibly a considerable lag, perhaps even measured in years,” said Madani, who projects the auto sector to be a big drag on manufacturing-sector performance.
Statistics Canada said August sales were down in 16 of 21 industries, representing about 81 per cent of the country’s manufacturing industry. In constant dollar terms, sales fell 3.7 per cent, suggesting a lower volume of products was sold.
Sales of transportation equipment fell 12.8 per cent to $8.9 billion in August, said the agency, mostly because of fewer sales of motor vehicles and parts.
After a gain of 13.7 per cent in July, which was stronger than usual, sales in the motor vehicle industry fell 12 per cent to $4.5 billion in August. Sales in the parts industry were down 10.8 per cent to $2 billion for the month — the second drop in eight months.
Statistics Canada also said sales of petroleum and coal products fell 3.4 per cent to $7.3 billion.
Sales dropped in seven provinces in August, mostly concentrated in Ontario.
The agency added that total inventories fell 0.6 per cent to $71.3 billion in August. It was the second time total inventories have fallen in eight months.
Economist Jimmy Jean of Desjardins Economic Studies said the decrease could be the industry’s first pothole of what might be a bumpy road ahead.
“The report speaks for a potentially more difficult second half of 2014, after the very promising first half,” Jean wrote in a note.
“To be sure, part of the weakness is payback for a very strong month of July, but given the current context for global trade and industrial output, the case for a bullish manufacturing outlook for Canada is not necessarily compelling.”
Jean described the results as “sourly disappointing,” adding that he supports the Bank of Canada’s position that recovery of non-energy and trade-sensitive areas of the country’s economy remain uncertain.
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