UPDATE 2-Dive in Canada factory sales signals growth slowdown

Fri Jun 14, 2013 10:32am EDT

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* Sales plunge 2.4 percent

* Analysts had expected a 0.3 percent increase

* Lower sales of petroleum, coal and primary metals to blame

* Some refineries reported slowdowns longer than usual

* Inventories reach record high

By David Ljunggren

OTTAWA, June 14 (Reuters) - Refinery slowdowns helped push Canadian factory sales to their biggest monthly drop in nearly four years in April, signaling a weak start to the second quarter after strong economic growth in the first three months of the year.

Statistics Canada said on Friday that sales plunged by 2.4 percent in April from March, the fourth drop in five months and the biggest retreat since the 2.5 percent fall recorded in August 2009.

Canadian growth in the first quarter was 2.5 percent on an annualized basis, much higher than the Bank of Canada's 1.5 percent forecast in April. The central bank sees 1.8 percent growth in the second quarter.

Analysts, who had expected a 0.3 percent increase in month-on-month factory sales, variously called the April figures upsetting, ugly, very weak and disappointing.

"The month's factory sector weakness suggests April GDP could eke out, at best, an only mild gain," said Emanuella Enenajor of CIBC World Market Economics. Statscan will release the April GDP data on June 28.

April sales were down 3.3 percent from April 2012, while volumes decreased 3.5 percent over the same period.

The report came after recent data showed near record jobs gains and strong housing starts in May.

Factory sales were down in 13 of 21 industries, representing about 86 percent of Canadian manufacturing. Constant dollar sales fell by 1.6 percent on lower sales volumes.

"This will weigh heavily on monthly industry GDP and is consistent with our expectation for a deceleration to below trend economic growth in the second quarter," TD Securities macro strategist Mazen Issa said in a note to clients.

The Canadian dollar initially softened to C$1.0177 to the U.S. dollar after the data was released, weaker than Thursday's finish of C$1.0166, or 98.37 U.S. cents.

Petroleum and coal product sales plummeted 8.8 percent in April and are down 14.0 percent since November 2012. Petroleum refineries account for 93 percent of sales in the petroleum and coal product category.

"In April, some refineries reported that either maintenance or the switch to summer fuels required production to be slowed or halted for a longer than normal period of time," Statscan said in its daily commentary.

Primary metal sales dropped by 8.7 percent in April to the lowest level since May 2010.

Inventories rose by 0.6 percent - the fourth consecutive monthly increase - to a record high. The inventory-to-sales ratio rose to 1.43 in April from 1.39 in March, matching the 1.43 recorded in October 2009.

"This cools the mood a bit on Canadian fundamentals after the robust employment and housing starts received recently," said Desjardins Capital Markets strategist Jimmy Jean.

Statscan revised March's drop in factory sales to 0.6 percent from an initial 0.3 percent and February's advance to 3.5 percent from 2.8 percent.

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