March 18, 2014 / 12:42 PM / 3 years ago

UPDATE 2-Canada factory sales bounce back after weather hit

4 Min Read

* Sales rise 1.5 pct in Jan vs estimate of 0.6 pct gain

* Primary metals and food among main drivers of growth

* Inventories jump 3.6 pct in biggest gain on record

By Louise Egan

OTTAWA, March 18 (Reuters) - Canadian manufacturing sales bounced back more quickly than expected in January in a sign that the economy may be recovering from weather-related weakness at the end of last year.

Factory sales climbed 1.5 percent in January from December, Statistics Canada said on Tuesday. It was the briskest pace in nearly a year and well above the market forecast of a 0.6 percent gain, making up for the revised 1.5 percent downturn in December.

In volume terms, which matter most in measuring gross domestic product, factory sales expanded 0.7 percent.

Analysts welcomed the manufacturing bounce-back, which was likely helped by a weaker Canadian dollar, but they warned that the sector was still relatively weak in historical terms. Total sales were still below November 2013 levels and well below the pre-recession peak in 2008.

The data could also be more volatile than usual due to severe North American weather, which persisted in January.

"The weather-related troubles in the U.S. manufacturing sector seem to have disrupted Canadian data to a significant extent at the turn of the year, and it might take until the spring to get a clear view," said Jimmy Jean, economic strategist at Desjardins Capital Markets.

Inventories in the manufacturing sector registered their biggest monthly gain since the data series began in 1992, jumping 3.6 percent. Unfilled orders jumped by a hefty 4.8 percent and new orders were up 2.6 percent.

"The spike in inventories and unfilled orders suggests that Canadian manufacturing sales would have grown even faster in January if not held back by the month's adverse weather," said Bill Adams, senior international economist at PNC Financial Services Group.

Although the Canadian economy grew at a healthy 2.9 percent pace on an annual basis in the fourth quarter, it contracted in December and is expected to slow considerably in the first quarter.

The Bank of Canada, which has held its main interest rate at 1.0 percent for more than three years, has said it is worried about chronically weak inflation and sluggish business investment and exports.

"The February manufacturing sales report will be a bit of a wild card, but it looks like Canadian industrial production should be a tailwind to real GDP growth in the first quarter of 2014," Adams said.

The primary metal industry led the sales gains in January along with the food and "miscellaneous" industries, a category that includes a range of industries such as sporting goods, medical equipment and toys.

A sharp drop in motor vehicle sales partially offset the gains. Excluding autos, sales were up 2.2 percent.

In volume terms, factory sales rose 0.7 percent, and 12 of 21 industries, representing just under half of all the sector's sales, posted increases, Statscan said.

As a result of the big buildup in inventories, the inventory-to-sales ratio jumped to 1.42 in January from 1.39 in December.

Compared with January 2013, total manufacturing sales increased 5 percent, Statscan said.

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