June 15, 2011 / 12:43 PM / in 6 years

Japan tsunami hits factories in April

OTTAWA (Reuters) - The Japanese tsunami dragged down Canadian manufacturing sales in April and home sales dipped in May, reports on Wednesday showed, offering further evidence the economy hit a soft patch in the second quarter.

<p>A partially assembled Chrysler minivan works its way down the assembly line during the production launch of the new 2011 Dodge Grand Caravan's and Chrysler Town &amp; Country minivans at the Windsor Assembly Plant in Windsor, Ontario January 18, 2011. REUTERS/Rebecca Cook</p>

Manufacturing sales slipped 1.3 percent in value in April, as expected, as the Japanese disaster cut off supplies to the auto industry, Statistics Canada said.

Markets had already priced in a weaker reading as recent signs pointed to a period of sluggishness after the economy grew by a healthy 3.9 percent clip in the first quarter.

The housing market is also showing signs of cooling. Sales of existing homes in May dipped 0.6 percent from April, the Canadian Real Estate Association said, but were up 2.7 percent from a year earlier.

As well as dropping in value terms, factory sales volumes fell by 1.8 percent in April and this was the key data point, analysts said. They said it proves the sector has been a drag on the economy in the second quarter and signals that the Bank of Canada will be in no rush to raise interest rates to slow things down further.

“Today’s weak print provides a cautious reminder that the pace of economic growth is slowing in Canada,” said Mazen Issa, a strategist at TD Securities.

“In terms of monetary policy, the Bank of Canada is likely to be discouraged from the lack of organic growth in the economy,” he said, reiterating TD’s new forecast that the central bank will keep rates at the current ultra-low 1.0 percent until early next year.

Most primary dealers in a May 31 Reuters poll forecast the next rate hike would come in September.

The Canadian dollar slipped against its U.S. counterpart immediately after the report and over an hour later was at C$0.9716 to the U.S. dollar, or $1.0292, down from Tuesday’s North American finish of C$0.9689 to the U.S. dollar, or $1.0321.

PRE-RECESSION LEVEL MAINTAINED

The April manufacturing sales decline reversed much of the 1.9 percent gain in March. Still, total sales at C$46.7 billion ($48.1 billion) have recovered to the levels of late 2008 at the start of the recession, but remained below the July 2008 peak of C$53 billion.

New orders tumbled 10.3 percent, almost eclipsing the 11.5 percent increase in the previous month due to weaker orders for aerospace products.

The biggest drag on April sales came from a 7.8 percent drop in the transportation equipment sector. Motor vehicles and parts producers suffered steep sales declines due to supply disruptions arising from the Japanese earthquake and tsunami in March.

Excluding autos, sales fell 0.5 percent.

Inventories and unfilled orders were both at two-year highs, expanding 1.2 percent and 0.4 percent, respectively.

Additional reporting by Ka Yan Ng and Howaida Sorour; editing by Peter Galloway

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