June 30, 2011 / 12:51 PM / in 6 years

Auto sector slump stalls economy in April

OTTAWA (Reuters) - Canada’s economy stalled in April, setting the stage for weak second-quarter growth, as supply disruptions caused by Japan’s earthquake and tsunami triggered a slump in the key auto manufacturing sector.

<p>A Chrysler Group LLC employee works on the assembly line during the production launch of Chrysler vehicles at the assembly plant in Brampton January 7, 2011. REUTERS/Mike Cassese</p>

Gross domestic product (GDP) was unchanged in April following 0.3 percent growth in March, Statistics Canada said on Thursday. Analysts surveyed by Reuters, on average, forecast a 0.1 percent decline in April GDP.

Mining sector strength contributed to the slightly stronger-than-expected number. But it was still the second worst monthly performance since September 2010, slightly better than the 0.1 percent contraction in February.

“There was an outsized gain in mining that helped cushion against declines in manufacturing, wholesaling, and financial services,” Avery Shenfeld, chief economist at CIBC World Markets, wrote in a note to clients.

“Overall, better than expected but obviously not a good reading in absolute terms, and we expect May to show similar softness.”

The slightly stronger-then-expected reading helped the Canadian dollar extend gains against the greenback. The currency firmed to its strongest level in six weeks, boosted primarily by a rally in oil prices and relief that the Greek parliament approved an austerity package.

The Canadian data showed manufacturing production fell 0.7 percent in April following a robust 1.6 percent increase in March, with most of the weakness stemming from the auto sector.

Mining and oil and gas extraction jumped 1 percent and even construction edged up, offsetting the manufacturing declines so that overall goods-producing industries were flat in April.

Service-producing industries remained flat as strong consumer spending offset declines in wholesale, finance and insurance.

“This data point confirms the well-known belief that the second quarter of the year will be quite weak. Our most recent forecast pegs the expenditure-based measure of annualized quarterly growth at just 1.3 percent,” David Tulk, chief Canada macro strategist at TD Securities, wrote in a research note.

“Looking further into the future, the real story will be the magnitude of the rebound over the second half of the year.”

A separate report showing Canadian consumer confidence fell for the second straight month in June provided further evidence second-quarter annualized growth will slow from the first-quarter’s robust 3.9 percent pace.

The Conference Board of Canada said its consumer confidence index fell 2.5 points to 83.1 in June.

“The deterioration in consumer confidence this month was caused by increased uncertainty about future income and job prospects. Sentiment dropped across the country, with the exception of Quebec,” the not-for-profit research group said in a statement.

“Canadians continue to report that their current financial situation is worse now than it was six months ago.”

The survey was conducted between June 5 and June 13.

With additional reporting Howaida Sorour and writing by Jeffrey Hodgson; editing by Peter Galloway

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