UPDATE 2-Jump in Canada factory sales seen boosting growth after dip

Tue Sep 17, 2013 10:35am EDT

* Sales rise 1.7 pct vs estimate of a 0.5 pct advance

* Most industries report higher sales

* Analysts say healthy data should boost growth figures

By David Ljunggren

OTTAWA, Sept 17 (Reuters) - Canadian manufacturing sales jumped a much greater-than-expected 1.7 percent in July from June, a sign the economy is recovering after disruptions caused by floods in Alberta and a work stoppage in Quebec.

Analysts had predicted sales would rise 0.5 percent from June. The month-on-month increase was the largest since the 3.5 percent leap in February, Statistics Canada said on Tuesday.

Of 21 industries, 15 posted higher sales in July. Constant dollar sales grew 1.1 percent, indicating that most of the overall July increase was volume-based.

The Canadian economy, heavily dependent on the United States, has largely struggled to impress this year and June manufacturing sales were hit by both the floods and work stoppage. Analysts said the healthy factory sales figures were a sign growth could be picking up.

"The rebound in the volume of manufacturing sales in July is encouraging and suggests ... weakness in June was nonetheless temporary," said Nathan Janzen of RBC Economics Research.

Statscan revised its figures for June, saying factory sales had slid only 0.1 percent on the month. Initially it said they had dropped 0.5 percent.

Mazen Issa, a strategist at TD Securities, said whether the healthier trend continued depended largely on the durability of the U.S. recovery.

"Though there are several immediate obstacles that could derail this (for instance, the debt ceiling debate), we ultimately look for a sustainable rebound, which should see the Canadian economy gradually accelerate through next year," he said in a note to clients.

The data briefly helped push the Canadian dollar to a session high of C$1.0304, or 97.05 U.S. cents. It closed on Monday at C$1.0325, or 96.85 U.S. cents.

Petroleum and coal product industry sales advanced 2.4 percent on higher prices while miscellaneous manufacturing sales jumped 23.9 percent on strength in the jewelry and silverware industry. The sector had slumped 20.0 percent in June.

New orders dropped 1.7 percent after rising 3.2 percent in June. Unfilled orders increased 0.4 percent while the inventory-to-sales ratio dipped to 1.40 from 1.41 in June, edging further away from the almost four-year high of 1.43 it hit in April.

Derek Holt of Scotiabank Economics took a more cautious tone on factory sales, noting the trend over the past two years had essentially been flat.

"Soft growth in manufacturing-related sectors has been one of the major challenges for the Canadian economy during the 'post-recovery' period, and nothing with respect to fundamentals has shifted in a manner that is likely to change that situation," he said in a note to clients.

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