Canadian manufacturing sales fell by 0.8 percent in May from April, a drop that was significantly worse than expected as the auto industry failed to bounce back quickly from parts shortages resulting from the earthquake and tsunami that hit Japan in March.
But it was not just autos that were weak. Statistics Canada reported on Friday that 11 of 21 industries, representing 72 percent of manufacturing, posted sales declines. Nondurables, especially food, energy and chemical products, led the way.
The auto industry, suffering supply-chain disruptions because of the disaster in Japan, fell a further 1.5 percent after April's 8.2 percent drop. The median forecast in a Reuters survey of economists was for a 0.2 percent decline in manufacturing sales in May, and the worst of 13 predictions was for a 0.6 percent fall. Sales in April had dropped 1.3 percent.
The data added to expectations that the auto industry problems and a deepening economic slowdown in the United States are likely to have triggered a dramatic hit to Canadian gross domestic product in the quarter just passed. "The second quarter is a lost cause," TD Securities chief macro strategist David Tulk said.
Bank of Canada Governor Mark Carney has said growth would be in the 1 percent range in the quarter before rebounding in the second half of the year. The market expects the central bank to keep interest rates unchanged at its next policy announcement date on July 19. A recent Reuters survey of 21 economists showed Canadian GDP growth is expected to have slowed to an annualised 1.5 percent in the second quarter from 3.9 percent in January-March.
That is a big drop from the 2.7 percent second quarter growth rate forecast in a poll just three months ago. Another data point for the second quarter, released by Statscan on Friday, showed non-residential building construction up by a seasonally adjusted 0.1 percent after a 1.1 percent rise in the first quarter. However, the industrial and commercial components were up by a more substantial 0.8 percent, while institutional building fell.
GDP data for May will be released on July 29. April showed no GDP growth, but the expectation is that a recovery in the auto sector should underpin June, There has been some bullish data for the second quarter. A quarterly survey by the Bank of Canada found business hiring intentions at a record high and an upbeat outlook for sales and investment. Statscan has reported increases in retail sales for April, building permits for May, and jobs for June.
Real estate industry figures on Friday showed a 2.6 percent increase in the number of home resales in June from May. But the Friday factory sales data found manufacturing inventories climbed for the eighth straight month in May, by 0.7 percent, to their highest level since April 2009. The ratio of inventory to sales jumped from 1.35 to 1.37, the highest since February 2010, reflecting higher inventories and two months of lower sales.
New orders showed no growth, but a bright spot was the increase in unfilled orders of 0.9 percent, the fifth straight monthly increase. It was driven by the volatile aerospace industry, and partly reflected simply the lower value of the Canadian dollar during May, which made US-dollar-denominated orders more valuable in Canadian currency.
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