March 16, 2010 / 2:54 PM / in 8 years

Canada recovery increasing pace, latest data shows

OTTAWA (Reuters) - Canada’s economic recovery is picking up pace with January manufacturing sales higher than expected and labor productivity rising for the first time in more than a year, official data showed on Tuesday.

Analysts enthused about the figures, saying it showed Canada was well over the worst of the recession.

“We saw a pair of very encouraging reports spill out of Statistics Canada today, which together suggest that the recovery is deepening and taking on a healthier glow,” said Douglas Porter of BMO Capital Markets Economics.

The minority Conservative government has so far taken a more cautious line, stating repeatedly that the recovery is still fragile and the jobless rate is too high.

Ottawa is also keeping a close eye on the strengthening Canadian dollar, which manufacturers say makes it harder for them to sell their goods.

Statscan said the value of manufacturing shipments rose by 2.4 percent in January from December, the fifth consecutive monthly increase. Analysts had predicted a 0.5 percent rise.

“This is undoubtedly a very strong report, and it suggests that the manufacturing sector is continuing to fire on all cylinders, defying the adverse impact of the strong Canadian dollar and the weak U.S. economy,” said Millan Mulraine of TD Securities.

Labor productivity rose 1.4 percent in the fourth quarter of 2009, the first increase in more than a year and the highest quarterly growth rate for almost 12 years.

Analysts had on average predicted productivity would increase by 0.8 percent.

“Given Canada’s dismal productivity over the past few decades, strength on this front is welcome,” said Derek Holt and Karen Cordes Woods of Scotia Capital Economics.

The data helped push up the Canadian dollar, which briefly hit a new 2010 high of C$1.0153 to the U.S. dollar, or 98.49 U.S. cents. It had closed at C$1.0197 to the U.S. dollar, or 98.07 U.S. cents, on Monday.

Yields on overnight index swaps, which trade based on expectations for the Bank of Canada’s key interest rate, edged higher on Tuesday, showing the market saw credit tightening by the central bank as slightly more likely than on Monday.

The market suggests central bank interest rates will rise to 0.50 percent in July from the current 0.25 percent and will end the year at 1 percent.

The Bank of Canada has promised to keep the rate steady until the end of the second quarter on the condition that inflation does not pose too much of a threat.

Paul Ferley, assistant chief economist at RBC Economics Research, said “the continuing high, though moderating, unemployment rate is expected to keep inflation low, which will allow any tightening to be undertaken at a gradual pace”.

Reporting by David Ljunggren; editing by Peter Galloway

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