UPDATE 2-Canada manufacturing sales plunge, confirming weak trend

Fri Dec 14, 2012 10:08am EST

Related Topics

* Sales fall 1.4 pct vs estimate of no change

* Motor vehicles, primary metals post big drops

* Data confirms Canadian economy struggling to advance

By David Ljunggren

OTTAWA, Dec 14 (Reuters) - Canadian manufacturing sales unexpectedly plunged by 1.4 percent in October from September in the latest sign the economy is struggling to cope with market problems abroad and due to the effect of a strong Canadian dollar.

Statistics Canada said on Friday that the drop - the biggest in nine months - was due to weakness in major sectors such as motor vehicles and primary metals.

Analysts had expected no change in manufacturing sales. Statscan revised September's performance to unchanged from an initial 0.4 percent increase.

"A slowdown in emerging market growth and uncertainty related to the fiscal crises in both the U.S. and Europe have all led to a deceleration in global economic momentum, especially in the second half of this year," TD Economics economist Francis Fong said in a note to clients.

The October drop was the greatest since a 2.4 percent retreat in January 2012.

Analysts said the poor performance would affect October's growth figures, due to be released next Friday.

The Bank of Canada has predicted fourth-quarter growth of 2.5 percent, annualized, which now looks rather optimistic. Canada's economy grew at a sluggish 0.6 percent pace, annualized, in the third quarter.

"While this (manufacturing) is only one data point, extrapolating this for the (fourth) quarter as a whole would suggest a quarterly annualized rate of growth a touch below 1 percent," said TD Securities strategist Mazen Issa.

The Canadian dollar initially eased slightly to a session low against its U.S. counterpart, to C$0.9852 versus the greenback, or $1.0150, from around C$0.9845, or $1.0157 before the release. It later recouped the losses.

The October manufacturing report was weak across the board and showed sales declined in 12 of 21 industries, representing about 71 percent of the manufacturing sector.

In volume terms, sales were down 2.4 percent, the biggest decline since a 2.7 percent drop in January 2012.

Sales in the motor vehicle assembly industry dropped by 3.7 percent to C$4.4 billion ($4.5 billion) while primary metals sales were down 2.8 percent to C$3.7 billion. The declines were partly offset by advances in the petroleum and coal product industry, where sales rose by 2.0 percent to C$7.4 billion.

The inventory-to-sales ratio advanced to 1.36 from 1.32 in September while inventories grew by 1.3 percent. Unfilled orders were flat while new orders fell by 0.6 percent.

Statscan outlined another area of weakness on Tuesday when it noted imports had dropped to a 15-month low in October.

Some analysts, though, looked to the United States for inspiration, saying prospects there were good if Washington could avoid the so-called "fiscal cliff" next year - referring to steep tax hikes and spending cuts that kick in early in 2013.

"The second half of 2013 is expected to be more prosperous for manufacturers as the US is expected to grow more robustly," said Issa.

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