UPDATE 2-Canada factory sales climb in Sept on aerospace orders

Thu Nov 15, 2012 10:28am EST

* Sales rise 0.4 pct in Sept. on aerospace, primary metals

* Excluding aerospace, sales fell 0.7 pct

* Gains in eight of 21 industries

* Data confirms weak Q3 growth; outlook better for Q4

By Louise Egan

OTTAWA, Nov 15 (Reuters) - Canadian manufacturing sales grew 0.4 percent in September from August due mainly to a sharp rise in the volatile aerospace sector, but sales fell in the heavyweight auto industry and in most other industries, Statistics Canada said on Thursday.

The gain was above the 0.3 percent increase forecast. But analysts said the details of the report were weaker and confirmed slower economic growth in the third quarter.

"The slowing in activity is consistent with other indicators that showed the economy geared down in the quarter," said Dawn Desjardins, assistant chief economist at RBC Economics.

Sales rose in just eight of the 21 industries surveyed. Excluding the aerospace product and parts industry, manufacturing sales fell 0.7 percent.

In volume terms, overall sales were up 0.4 percent.

Statistics Canada sharply revised down its August factory sales figure to a 0.9 percent gain from 1.5 percent previously.

Desjardins said, however, even the modest gain in manufacturing, combined with expected similar increases in the energy and farming sectors, should lift September gross domestic product growth to 0.3 percent. The data will be released on Nov. 30, along with figures for third-quarter GDP.

"While this will not be enough to save the economy from recording a weak reading in the third quarter of 2012 overall, it will provide a solid handoff for the final quarter of the year," she said in a note to clients.

The Bank of Canada, which has signaled it wants to raise interest rates but not any time soon, projects third-quarter growth of just 1.0 percent, annualized, down from 1.8 percent and 1.9 percent in the previous two quarters.

The economy is likely to get a lift at year end and into 2013 from a rebound in U.S. manufacturing sector, a return to full production in the energy sector and restocking of auto inventories destroyed by Hurricane Sandy, said David Tulk, a strategist at TD Securities.

However, that upbeat outlook is fraught with risk.

"The wider backdrop of subdued global demand, the persistent strength in the currency and the uncertainty surrounding the fiscal cliff in the US will limit the magnitude and durability of the recovery heading into 2013," he said.

Production in the aerospace product and parts industry surged 43 percent in September, the biggest jump since May. Figures for this sector tend to have a disproportionate influence on manufacturing data because of the size of the orders and lengthy production period.

Strength in September also came from primary metals, where sales rose 3.7 percent due in part to higher prices.

Auto sales, which have made a big comeback so far this year, fell 3.6 percent in September. Motor vehicle sales were up 18.2 percent from a year earlier.

New orders for factory goods rose 2.2 percent while unfilled orders slipped 0.3 percent.

Manufacturers continued to build inventories, which edged up 0.2 percent. The inventory-to-sales ratio was unchanged at 1.31 in September.