Factory sales fall, hint at slower recovery from early-2015 contraction

OTTAWA – The country’s manufacturing sector churned out disappointment to start the second quarter, producing another hint the economy’s healing process will take longer than expected.

Statistics Canada released its latest piece of economic data Monday, showing that factory sales contracted 2.1 per cent in April to kick off the second quarter.

The result, about four times lower than consensus estimates, marked the third month out of the first four this year that manufacturing sales have tumbled.

The release of the manufacturing numbers followed the economy’s weaker than expected start to 2015, when Canada’s real gross domestic product shrank at an annualized rate of 0.6 per cent over the first three months.

That low GDP reading prompted economists to cut their outlooks for the second quarter and the rest of the 2015 election year — with the economy once again set to be a crucial ballot-box issue.

“I think that overall it was a pretty weak print,” TD senior economist Randall Bartlett said of Monday’s manufacturing data, which he also noted showed sales volumes had contracted by one per cent in constant dollar terms.

“We actually expected (sales volumes) to rebound a little bit on the month … So, it’s a bit of a surprise, no question there.”

Several economists expect the Bank of Canada, which earlier projected 1.8 per cent growth in the second quarter, to downgrade that forecast next month when it releases its next monetary policy report.

The Statistics Canada report Monday said sales dropped in eight of 21 industries, which account for nearly two-thirds of the country’s overall manufacturing output.

The April sales retreat was in large part due to declines in food, aerospace and petroleum and coal products.

Food sales decreased 5.7 per cent in April — the biggest monthly drop since August 2013, when sales fell 6.7 per cent. The tumble followed a gain of 3.4 per cent in March.

Economists noted part of the April decline came in the typically volatile category of aerospace, an area that often swings from month to month.

Sales slid in every province — except Manitoba — and nearly two-thirds of the overall decline was in Quebec, where they fell 5.4 per cent.

Inventories rose 0.8 per cent to $72.3 billion in April, while the value of unfilled orders fell two per cent. New orders fell 5.6 per cent in April, due in large part to a rising Canadian dollar.

“The second quarter is off to a poor start due to weak sales and another inventory build in the manufacturing sector,” National Bank senior economist Krishen Rangasamy wrote in a note to clients.

“At this point, it seems the expected (second-quarter) GDP rebound … won’t be spectacular.”

Looking forward, experts say that while second-quarter manufacturing and trade data been disappointing, there have also been positives in the labour and housing markets.

“Obviously, it’s a blip but hopefully the momentum is going to shift and we’ll be moving in the right direction,” Bartlett said of the manufacturing data.

“The economy is moving along fairly well.”

The economy’s early-2015 slide has been linked to several factors, including the harsh winter in many parts of North America, the failure of other sectors to pick up the slack, slower growth in the United States and the plunge in oil prices.

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