December 15, 2016 / 1:42 PM / a year ago

UPDATE 2-Canadian manufacturing sales drop on widespread weakness

(Adds analyst comment, background, details)

By David Ljunggren

OTTAWA, Dec 15 (Reuters) - Canadian manufacturing sales unexpectedly fell by 0.8 percent in October from September on widespread weakness, indicating fourth-quarter growth could be sluggish, Statistics Canada data showed on Thursday.

Analysts polled by Reuters had expected sales to increase by 0.4 percent from September. The decline was the biggest since the 0.9 percent retreat in March 2016.

Canada’s economy grew by 3.5 percent on an annualized basis in the third quarter after shrinking in the second quarter following a major wildfire in oil-producing Alberta. Economists expect fourth-quarter growth to be more modest.

“Today’s data are a clear negative for the October GDP outlook, supporting our view for a meaningful slowdown in fourth-quarter growth from the third quarter’s firm pace,” said Nick Exarhos of CIBC Economics.

The Bank of Canada, which last year cut interest rates twice to help counter the shock caused by low oil prices, pointed to a “significant” amount of slack in the Canadian economy as it held rates steady last week.

Governor Stephen Poloz is scheduled to hold a news conference at 11:15 a.m. (1615 GMT) on Thursday to discuss the bank’s latest financial system review.

In October, the central bank cut its forecast for annualized fourth-quarter growth to 1.5 percent from 2.8 percent.

“This should help remind markets of the challenging outlook for the Canadian economy,” said TD Securities strategist Robert Both in a note to clients.

Sales fell in 15 of the 21 industries, representing 61 percent of the manufacturing sector. The volume of goods sold, a measure which strips out the effect of price changes and is closely watched by economists, plunged by 1.7 percent.

Primary metal sales sank by 2.4 percent while petroleum and coal products posted a 1.7 decline on lower volumes of product sold.

Reporting by David Ljunggren; Editing by Meredith Mazzilli

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