Canada factory sales jump, add fuel to rate-hike talk

Wed May 16, 2012 11:27am EDT
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By Louise Egan

OTTAWA (Reuters) - Canadian factory sales blew past expectations in March with the biggest gain in six months due to vigor in the oil industry, putting the economy back on a growth track after a surprise contraction in February.

Manufacturing sales rebounded by 1.9 percent, Statistics Canada said on Wednesday, not quite compensating for the two previous months of declines, as shipments of petroleum and coal products jumped to their highest level in more than 3-1/2 years.

Analysts surveyed by Reuters had forecast, on average, a 0.3 percent increase in sales at the factory gate in the month.

At C$49.7 billion ($49.2 billion) in March, factory sales still have not regained their heights of before the 2008-09 recession as manufacturers struggle with a sluggish U.S. market and the effects of the strong Canadian dollar.

In volume terms, sales were also up 1.9 percent.

Analysts were cheered by the report, which bodes well for economic growth in March following a 0.2 percent decline in February from January. The figures also support the growing view that the Bank of Canada could resume raising interest rates later this year after a two-year hiatus.

"A 2 percent increase in new orders plus the observed improvement in hours worked and employment suggests that the manufacturing sector will contribute to growth heading into Q2 and help the wider recovery become better balanced," David Tulk, chief Canada macro strategist at TD Securities, said in a research note.

"Set against diminishing spare capacity, the prospect of stronger growth over the balance of the year will warrant the modest withdrawal of stimulus by the Bank of Canada."   Continued...