Factory sales return to pre-crisis levels

Mon May 16, 2011 10:25am EDT
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By Louise Egan

OTTAWA (Reuters) - Manufacturing sales climbed 1.9 percent in March, bringing the industry measure to the highest quarterly level since the start of the recession and suggesting stronger-than-expected first-quarter economic growth.

The manufacturing sales data topped the consensus forecast for a 1.6 percent increase. It was based largely on strength in the auto sector and aerospace and followed a 1.8 percent drop in February, Statistics Canada said on Monday.

In volume terms, sales rose 1.9 percent.

Sales rose 4 percent from the fourth quarter in the January to March period and hit the highest level since the third quarter of 2008.

Canada's manufacturing sector has been the weak link in the country's economic recovery, struggling not only with weak U.S. demand for goods but a sharp appreciation of the Canadian dollar, which has made Canadian goods more expensive in foreign markets.

The latest data signaled that the Bank of Canada's upbeat forecast of 4.2 percent annualized growth in the first quarter may be too low and reinforced expectations that the bank will raise interest rates in July.

"Today's robust print confirms last week's trade data that first-quarter annualized GDP growth is shaping up to be stronger than initially forecast, posing an upside risk to the Bank of Canada's and our own estimates," said Mazen Issa, macro strategist at TD Securities.

"In this sense, we remain comfortable with our long-standing call for a July rate hike and believe that pricing in the OIS (overnight index swaps) market is too dovish," he said.   Continued...