Canada Factory Sales Surprise in September With 0.5% Gain -- 2nd Update

By Paul Vieira Features Dow Jones Newswires

Canadian manufacturing shipments unexpectedly rose in September, with strong sales of energy products overcoming a decrease in the auto sector due to a strike at a General Motors Co. factory.

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Factory sales climbed 0.5% in September on a seasonally adjusted basis to 53.74 billion Canadian dollars ($42.07 billion) from August, Statistics Canada said Thursday.

The result exceeded market expectations for a 0.5% drop in shipments, according to economists at Royal Bank of Canada, and builds on August's revised advance of 1.4%.

On a volume or price-adjusted basis, manufacturing sales in September rose 0.7%.

The report, though, indicated factory-sector strength was concentrated in a handful of sectors, as sales rose in just seven of the 21 components tracked on a month-over-month basis.

"Canada's manufacturing report beat expectations but still pointed to a soft quarter and mixed monthly details," said Bank of Nova Scotia economists in a note to clients.

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Nick Exarhos, economist at CIBC World Markets, said the narrow scope of the sales increase for September and "still troubling trend in export volumes" continue to point to reasons for concern ahead.

Economists had expected a decline in September, largely due to the impact of a strike by workers at a General Motors sport-utility factory in Ingersoll, Ontario, that ran from mid-September to mid-October. There was also retooling at some factories to accommodate production of certain vehicle models destined for the U.S.

Canadian trade data in September, released earlier this month, showed exports fell 0.3% in September from August, with a decline in auto-sector sales abroad weighing on results.

Canada's manufacturing report for September indicated the sale of motor vehicles fell 5.9% to C$4.96 billion, and auto-parts shipments dropped 2.5% to C$2.41 billion. Excluding the auto component, manufacturing sales in Canada rose by 1.4% in September.

The overall result though points to a rebound in economic output in September, after Canadian gross domestic product shrank in August and was largely unchanged in July. The Bank of Canada has said growth will moderate in the second half of 2017 after a banner 12-month run, and anticipates annualized expansion of 1.8% in third quarter.

In remarks Wednesday, the Bank of Canada's senior deputy governor, Carolyn Wilkins, said growth was slowing to a more "sustainable" level. Further, she laid out the case as to why the central bank was now embracing a more cautious approach after two rate increases in July and September, noting the risk posed by lower-than-expected inflation, and uncertainty surrounding how highly indebted households will respond to the rate rises and tougher mortgage-financing rules that are in the offing in 2018.

Following September's results, factory-sector sales rose 4.6% on a year-over-year basis.

Sales of petroleum and coal products climbed 10.3% to C$5.45 billion on a month-over-month basis, leading the charge and helping offset auto-sector softness. The gain reflected price increases for commodities. On a 12-month basis, shipments of petroleum and coal products surged nearly 23%.

Meanwhile, sales of machinery rose 1.9% to C$3.30 billion, and paper-product shipments climbed 1% to C$2.31 billion.

Besides autos, the other main source of weakness in the month was the food-processing sector, as sales dropped 1% to C$8.39 billion.

Inventories fell 0.7% to C$73.25 billion, marking the fourth straight monthly decline. A drop in stockpiles could suggest that demand is outstripping production.

Unfilled orders, or the stock of orders that will contribute to future sales assuming they aren't canceled, fell 1.1% in September. New orders dropped 1.7%, after a revised advance of 5.2% in previous month.

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

(END) Dow Jones Newswires

November 16, 2017 10:29 ET (15:29 GMT)