March 16, 2016 / 12:48 PM / 3 years ago

Canada January factory sales jump, boding well for Q1 growth

OTTAWA (Reuters) - Canadian manufacturing sales rose at a surprisingly strong clip at the start of the year, raising expectations that the economy will see stronger growth in the first quarter than the Bank of Canada has forecast.

Production Associates inspect cars moving along assembly line at Honda manufacturing plant in Alliston, Ontario March 30, 2015. REUTERS/Fred Thornhill

Factory sales rose 2.3 percent in January, Statistics Canada said on Wednesday, topping analysts’ forecasts for a gain of 0.5 percent and pushing sales up to a record C$53.13 billion ($39.8 billion). December was revised up to a 1.4 percent gain.

While some of January’s increase was due to the depreciation of the Canadian dollar, which can increase prices, volumes were robust with a 2.4 percent increase. Volume levels were at their highest since before the 2008-2009 recession.

Economists said the figures suggest the economy could exceed the Bank of Canada’s 1 percent growth forecast in the first quarter. The central bank cut interest rates twice in 2015 to help an economy stung by a brief recession, but has held rates where they are so far this year.

The Canadian dollar, which hit a 12-year low in January, pared its losses against the greenback following the factory data but still remained weaker. [CAD/]

“Canadian exports are starting to show signs of life, and factories are responding in kind,” CIBC economist Nick Exarhos wrote in a note.

Renewed strength in the export sector is key to the Bank of Canada’s economic outlook.

The expiration of currency hedges and contracts priced in the Canadian dollar are expected to give exporters a competitive edge and provide additional power to a rebound in the manufacturing sector.

Sales of vehicles surged 9.6 percent in January, the biggest increase since March 2015. The weaker Canadian dollar and a shift toward production of higher-end, more expensive models boosted the sector.

Food sales rose 4.6 percent, with volumes the highest in more than 10 years. The report noted that the food industry is usually one of the more stable in the manufacturing sector.

Separate data showed foreign investors resumed buying Canadian securities in January with a big push into corporate and government debt, while Canadians sold off their positions in foreign equities during the volatile month for markets.

Foreigners bought C$13.51 billion in Canadian investments after selling a small amount at the end of 2015.

Canadians sold a record C$13.82 billion in foreign securities. The reduction in U.S. equities investments was the largest in a year.

($1 = $1.3358 Canadian)

Editing by Meredith Mazzilli

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