UPDATE 2-Canada factory sales slip, weigh on August growth

Wed Oct 16, 2013 10:41am EDT
 
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* Sales fall 0.2 pct vs estimate of 0.2 pct gain
    * Autos, food and miscellaneous drag down factory sales
    * New orders up 0.1 pct, unfilled orders up 0.4 pct


    By Louise Egan and Randall Palmer
    OTTAWA, Oct 16 (Reuters) - Canadian manufacturing sales
unexpectedly fell in August, likely dampening economic growth in
the month as the outlook for the sector remains murky in light
of the fiscal standoff in its top market, the United States.
    Factory shipments sank 0.2 percent from July to a seasonally
adjusted C$49.5 billion ($47.6 billion) in the month, dragged
down by weakness in the vehicle assembly and food industries as
well as an outsized drop in the small jewelry and silverware
sector, Statistics Canada said on Wednesday.  
    Analysts surveyed by Reuters had predicted a 0.2 percent
gain in August. Eleven of 21 industries registered setbacks. 
    The volume of sales, used in calculating gross domestic
product, fell 0.3 percent.
    The report suggests manufacturing will contribute little to
monthly GDP and supports the Bank of Canada's move to downgrade
its growth forecast for the third quarter to between 2.0 and 2.5
percent from 3.8 percent, annualized. 
    "Manufacturing has stagnated in 2013 and not much positive
momentum should be expected over the balance of the year as the
prospects of a healthy recovery in the U.S. into the fourth
quarter look precarious," said Mazen Issa, an economist with TD
Securities.
    After weeks of bitter fighting, U.S. lawmakers prepared on
Wednesday to put forth a proposal to raise the debt limit and
reopen a partially shuttered government in hopes of avoiding a
historic default which could throw the economy back into
recession. 
    Canada sells about 75 percent of its exports in the United
States.
    "Even if a short-term deal is brokered to extend the
deadline into early next year, uncertainty will hang in the
balance leaving the Canadian manufacturing industry in limbo,"
Issa said in a note to clients.
    Year on year, sales were up by just 0.3 percent in current
dollar terms and down 2.1 percent in volume. 
    
    
    Growth in the Canadian economy has disappointed this year,
Bank of Canada Governor Stephen Poloz said on Friday, and August
trade data released last week showed exports were still not
providing the much-wanted boost in the third quarter.
  
    Factory sales and exports both remain below their
pre-recession peaks.
    In August, motor vehicle assembly plants saw their sales
slide 2.5 percent, reflecting unusually meager gains after
maintenance shutdowns in July, Statscan said. Excluding autos,
sales were flat in August. 
    Food industry sales slid 1.6 percent and sales in the
miscellaneous category, representing about 2 percent of total
sales, plummeted 22.6 percent due to a drop in jewelry and
silverware.
    Aerospace products and parts and the primary metals industry
offset the declines with gains of 17.8 percent and 3.0 percent,
respectively.
    Demand for aerospace shipments helped nudge up new orders by
0.1 percent and also helped explain the 0.4 percent increase in
unfilled orders in August.
    Manufacturers expanded their inventories by 0.3 percent,
continuing a trend that began in 2010. The inventory-to-sales
ratio was unchanged at 1.39.