Another poor month for manufacturing points to slow growth in January

OTTAWA – Canada’s battered factory sector suffered through another poor month in January, recording a disappointing 0.2 per cent drop in sales that suggests the economy continues to struggle.

In terms of volume, which is directly related to economic growth, the news was worse as output fell 0.4 per cent.

The poor result — analysts had expected a rebound from December’s 3.3 per cent stumble — was eased somewhat by a 0.5 per cent volume increase in the wholesale trade figure.

But economists say January is shaping up as having been another soft month for gross domestic product, although stronger than December’s 0.2 per cent setback. The month also saw a fall-off in jobs, housing starts and exports.

The Canadian dollar fell on the news and was trading about one-third of a cent lower at 97.49 cents US near midday.

With retail sales the only major indicator remaining to be calculated, Capital Economics analyst David Madani says he believes GDP in Canada advanced by a modest 0.1 per cent in January, not enough to make up from the previous month’s retreat.

“Overall, the sideways trend in manufacturing and wholesale sales suggest that the economy struggled to gain much traction at the start of this year,” he said.

In two separate forecasts released Tuesday, the Royal Bank and TD Bank predicted the economy in Canada will improve as the year progresses, but that growth will remain below two per cent for the year as a whole. RBC is projecting a 1.8 per cent advance, while the TD Bank agrees with the consensus of 1.6 per cent.

The weakest spot in manufacturing in January was the volatile aerospace industries, which dropped by 19.7 per cent from December. Otherwise, the factory sector would have posted a 0.4 per cent gain.

But Ontario’s auto sector also fared poorly as the motor vehicle assembly factories declined 3.7 per cent. Jimmy Jean of Desjardins Capital Markets noted that the auto sector was also a drag in the wholesale numbers.

“Clearly, Ontario started off the year on the wrong foot,” he said in a note. “This might be more than temporary shutdowns (since) U.S. industrial production estimates show a 6.1 per cent decline at motor vehicle assembly lines for January.”

Overall, seven of 21 industries representing 52 per cent of the manufacturing sector, posted lower sales in January.

Manufacturing declined 2.7 per cent in Quebec to $11.3 billion, the largest decline since July 2012, while Ontario sales were down 0.8 per cent to $21.6 billion. The biggest gainer was Alberta, where sales rose 6.3 per cent to $6.3 billion, the largest increase since November 2012.