UPDATE 2-Canada Feb factory sales jump on autos, energy products

Tue Apr 15, 2014 10:32am EDT

Related Topics

* Sales rise 1.4 pct vs estimate of 1.0 pct gain

* Record-high jumps in new orders, unfilled orders

* Transportation equipment, energy main contributors

* February GDP growth seen slowing from January (Adds analysts' comments, background)

By Louise Egan

OTTAWA, April 15 (Reuters) - Canadian manufacturing sales in February jumped to the highest level since their pre-recession peak in July 2008, but volumes were more modest and pointed to slower economic growth than in January.

Sales gained 1.4 percent versus expectations for a 1.0 percent increase, helped by higher auto industry sales and by higher energy prices, Statistics Canada data showed on Tuesday. Statscan revised down January's sales increase to 0.8 percent from 1.5 percent, however.

The overall report was upbeat for a sector that is still struggling five years after the recession, with demand from the U.S. market staying tepid.

The report's details offered a mixed picture. There was an unprecedented increase in unfilled orders and in new orders, but sales rose just 0.8 percent in volume terms.

"While the improvement in manufacturing sales is an encouraging development, we would downplay the strength of this report given that some of it is likely embellished due to a resumption in activity following the weather-induced slowdown in U.S. production," said Mazen Issa, senior Canada strategist at TD Securities.

TD sees industry-level gross domestic product growing 0.2 percent in February, down from 0.5 percent in January, and sees 1.6 percent annualized economic growth in the first quarter versus 2.9 percent in the fourth quarter. Other forecasters see a similar trend.

The Bank of Canada may revise down its growth forecasts in its quarterly report on Wednesday. Analysts polled by Reuters unanimously expect the bank to also hold its benchmark interest rate unchanged at 1.0 percent.

Transportation equipment sales rose 4.3 percent in February. The biggest gain was in motor vehicle parts, but the motor vehicle assembly and other transportation equipment sub-sectors also saw increases.

Sales in the petroleum and coal-product industry increased 2.9 percent due mainly to a 2.5 percent rise in prices.

New orders jumped 18.8 percent and unfilled orders rose 16.5 percent in February, the biggest monthly increases since the data series began in 1992.

Both rose on a resurgence in the transportation equipment industry, particularly the "other transportation equipment sub-industry", which includes armored vehicles, military tanks, all-terrain vehicles and motorcycles, and the aerospace industry.

Offsetting that bright outlook was the fact that orders for big-ticket transportation equipment such as aerospace may not be reflected in shipments in the near term as the equipment takes longer to produce.

"A caveat is that since the transportation sector appeared to play a heavy role, some of this - like autos - will show up faster than the rest - like aerospace," said Derek Holt and Dov Zigler, economists at Scotiabank Economics.

Manufacturers' inventories grew by 1.1 percent in February. As a result the inventory-to-sales ratio dropped to 1.41 from 1.42 in January. ($1=$1.10 Canadian) (With additional reporting by Alex Paterson; editing by Peter Galloway)

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