UPDATE 2-Aerospace drop pulls down Canada factory sales in December

Fri Feb 14, 2014 10:49am EST

Related Topics

* Sales fall 0.9 pct vs estimate of 0.1 percent rise

* Volume down 1.9 percent, biggest fall in 12 months

* Aerospace the biggest factor, falling 19.4 percent

* November gain revised to 0.5 percent from 1.0 percent

* New orders up 4.5 percent; unfilled orders up 4.2 percent

By Randall Palmer

OTTAWA, Feb 14 (Reuters) - A decline in the volatile aerospace sector led Canadian factory sales to a 0.9 percent fall in value in December from the month before, lending weight to the view that the economy may have shrunk modestly in the last month of the year.

The Statistics Canada data on Friday also showed that the volume of sales fell by an even greater 1.9 percent in December, the biggest fall in 12 months.

In a positive sign for future business, however, the level of new orders rose by 4.5 percent, and unfilled orders by 4.2 percent.

"While weather, which resulted in power outages, may have had some effect, today's report is still a good deal softer than expected, and could therefore weigh on the (Canadian) dollar, helping fixed income," said Peter Buchanan, an analyst at CIBC World Markets.

The Canadian dollar was at C$1.0981 to the U.S. dollar, or 91.07 U.S. cents, at 10 a.m. EST (1500 GMT), down from C$1.0957, or 91.27 U.S. cents, just before the release of the factory sales figures.

The median forecast in a Reuters survey of analysts was for a 0.1 percent gain in December sales, though the estimates ranged from a 1.5 percent decline to a 1.0 percent rise.

Statistics Canada also halved its figure for November's sales gain to 0.5 percent from 1.0 percent, largely because of a revision of data for the oil refining industry.

Value of production in the aerospace industry dropped by 19.4 percent in December, and that accounted for C$351 million ($319 million) of the overall drop of C$473 million in manufacturing sales in the month. Exceptionally for aerospace, Statscan measures the value of production instead of sales of goods manufactured, but figures for the sector still tend to vary widely month-to-month. All the data is seasonally adjusted.

Desjardins Capital Markets economic strategist Jimmy Jean said that if there is a weak reading for gross domestic product in December, the implications will be bigger for the first quarter than for the fourth quarter, which he still sees posting 2.8 percent annualized GDP growth.

Toronto-Dominion Bank senior Canada macro strategist Mazen Issa said he expected the Bank of Canada to view December's weakness as transitory.

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