UPDATE 2-Canada Sept factory sales raise hopes of a comeback

Fri Nov 15, 2013 10:15am EST

* Sales rise 0.6 pct in Sept vs estimate of 0.5 pct gain

* Cars and food were main drivers of sales growth

* Volumes up 1 pct; new orders slide 2.6 pct

By Louise Egan

OTTAWA, Nov 15 (Reuters) - Canadian manufacturing sales jumped in September to their highest since June 2012 on strength in the auto and food industries, an encouraging sign that the hard-hit sector may be rebounding and contributing to speedier economic growth.

Manufacturing sales grew 0.6 percent in the month, slightly above the 0.5 percent gain forecast by market operators, to C$49.9 billion ($47.5 billion). Sales were flat in August.

In volume terms, which matter most for gross domestic product growth, sales rose 1 percent in September.

"This is the first gain in the volume of shipments since the first quarter of 2012 ... it might feed sentiment that perhaps Canadian manufacturing is finally turning the corner,' said Scotia Capital economists Derek Holt and Dov Zigler in a note to clients.

"A caution against this is that the order book has been waning," they said.

In contrast to the strong sales figure, new orders slid 2.6 percent, the biggest drop in nine months as a result of a decrease in the aerospace industry. Excluding aerospace, which is highly volatile, new orders were up 1.4 percent, a Statscan official said.

The Canadian dollar firmed to a session high after the data. It firmed as high as C$1.0453 to the greenback, or 95.67 U.S. cents, stronger than Thursday's close of C$1.0468, or 95.53 U.S. cents.

On the year, overall factory shipments rose 1 percent. But the weak U.S. market and strong Canadian dollar have prevented manufacturing from returning to its pre-recession peak.

The latest figures suggest a healthy growth rate in the month of September and annualized third-quarter growth of at least 2 percent, above the Bank of Canada's latest projection of 1.8 percent. September and quarterly GDP figures will be released on Nov. 29.

"This will bode well for industry-level real GDP and will likely extend what is admittedly an impressive rebound," said David Tulk, chief macro strategist at TD Securities.

"There are also encouraging signs from the United States that the economy has weathered the government shutdown which may end up being an upside surprise for the Canadian economy as exports become an increasingly important part of the recovery," he said.

Sales in the motor vehicle assembly industry leapt 5.4 percent and motor vehicle parts jumped 2.5 percent in September. Food sales climbed 2.6 percent, the biggest gain so far this year. Eleven of 21 industries registered sales increases in the month, representing just over half of all manufacturing.

Manufacturers' inventories declined for just the third time in nine months, Statscan said, shrinking by 0.9 percent. As a result, the inventory-to-sales ratio dropped to 1.37 in September from 1.39 in August.

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