April 16, 2013 / 2:35 PM / 4 years ago

Canada February factory sales surge, new orders fall

Workers piece together outerwear on the manufacturing floor of Canada Goose's facility in Toronto January 17, 2012.Fred Thornhill

OTTAWA (Reuters) - Canadian factory sales surged in February at the fastest pace in 20 months, an encouraging sign for the economy after a downturn in January, although the number of new orders fell in the month, Statistics Canada said on Tuesday.

The stronger-than-expected data gave a slight boost to the Canadian currency, which pushed below C$1.0210 immediately after the data was released. <CAD/>

Manufacturing sales jumped 2.6 percent due to strength in auto assembly, food processing, petroleum and coal and miscellaneous sectors, the agency said, noting that higher prices explained much of the gain in the energy industry.

Economists said the strong print in manufacturing volumes bodes well for gross domestic product in the quarter, a rare break after a string of weak data that will likely force the Bank of Canada to scale back its growth forecasts in its quarterly Monetary Policy Report on Wednesday.

The performance beat market expectations of a 0.9 percent increase and was the biggest since July 2011. Still, the sales total of C$49.6 billion ($48.6 billion) was below the pre-recession peak of C$53 billion.

"Notwithstanding this morning's big gain, the volume of manufacturing shipments is still tracking 2.6 percent lower" in the first quarter compared to the last three months of 2012, Scotiabank economist Derek Holt wrote in a note to clients.

"The bottom line? We're getting very volatile shipments figures...and the trend is likely to remain defensive on this reading later into spring," he said.

Overall, sales grew across 14 of 21 industries and excluding the auto sector they climbed 1.8 percent. In volume terms, sales were up a healthy 2.5 percent in February.

But new orders for factory goods slid 4 percent due to a decline in demand from the volatile aerospace industry while unfilled orders rose 0.4 percent.

Manufacturers continued to build inventories, with stockpiles swelling 0.9 percent to their highest level in nearly four years. The inventory-to-sales ratio eased to 1.33 in February from 1.36 in January.

A separate report showed that foreigners sold C$6.3 billion of Canadian securities in February, mainly the result of the biggest divestment of Canadian equities since October 2007.

Canadians bought C$4.4 billion of foreign securities, mostly U.S. government bonds, in the month after pulling back on external investments in the prior month.

($1 = $1.02 Canadian)

Reporting by Louise Egan and Alex Paterson; With additional reporting and writing by Alastair Sharp in Toronto; Editing by Chizu Nomiyama

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