Canada Factory Sales Beat April Expectations With 1.1% Rise -- Update

By Paul Vieira Features Dow Jones Newswires

Canadian manufacturing sales increased in April at their fastest pace in four months, with energy and metals doing the heavy lifting amid a slowdown in the auto sector.

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Factory shipments advanced 1.1% in April on a seasonally adjusted basis to a record 54.43 billion Canadian dollars ($41.21 billion), Statistics Canada said Thursday. That beat market expectations for a 0.9% increase, according to economists at Royal Bank of Canada.

On a volume, or price-adjusted, basis, factory sales increased 0.5%. On a 12-month basis, manufacturing shipments rose 7.6%.

March's data were revised downward and now indicate sales rose 0.8% in the month from the earlier estimate of a 1% gain. However, February's results were upgraded and now suggest shipments fell 0.2% versus the previously reported 0.6% decline.

The encouraging result for April will take on heightened importance for Canadian market watchers after the Bank of Canada's top two officials signaled this week that it's time to assess whether the Canadian economy, exhibiting signs of sustained growth across a wider spectrum of industries and regions, still requires ultralow interest rates. In a broadcast interview, Gov. Stephen Poloz said the interest-rate cuts the central bank delivered in 2015 to fend off the fallout from the oil-price shock had "done their work."

Economists have altered their Canadian rate forecasts as a result, with the bulk expecting the Bank of Canada to raise its benchmark policy rate of 0.50% at its October meeting. Some analysts indicated a rate rise next month couldn't be ruled out should data over the coming weeks, starting with April's factory-sales report, come in stronger than expected.

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"The manufacturing sector is holding well, and the outlook is also sound, " said Jimmy Jean, economist at Desjardins Capital Markets. "The reasons for the Bank of Canada sounding more upbeat on the current evolution were only reinforced in the factory sales report."

April's overall gain was driven by higher sales of petroleum and coal products, up 8.9% to C$5.43 billion, and in primary metals, up 3.8% to C$4.16 billion. On a price-adjusted basis, sales in the two categories climbed 7.8% and 2.5%, respectively.

Also contributing toward higher manufacturing sales were increases in paper, food, and machinery and equipment.

The biggest drag on the results was from the auto component. Sales of motor vehicles declined 3.7% to C$5.71 billion, while shipments of auto parts fell 2.1% to C$2.49 billion.

Excluding motor vehicles and auto parts, the data-gathering agency said factory shipments rose by a stronger 1.9% on a nominal basis, and 1.4% in volume terms.

Overall, sales were up in 13 of the 21 sectors tracked, representing 62% of sales. Shipments rose in eight of Canada's 10 provinces. That is in line with Bank of Canada commentary this week that growth is broadening.

The report said inventories rose 0.9% to a record C$73.43 billion, the fifth consecutive monthly increase. A rise in inventories suggests production exceeded consumption but also could signal firms are stockpiling goods in anticipation of stronger demand.

For a second straight month, two forward-looking gauges increased in tandem. Unfilled orders, or the stock of orders that will contribute to future sales assuming they aren't canceled, rose 1% to C$90.25 billion, while new orders advanced 0.4% to C$55.34 billion.

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

June 15, 2017 10:39 ET (14:39 GMT)