Manufacturing continues to struggle as output unexpectedly falls in June

OTTAWA – Canada’s factory sector continues to largely miss out on the economic expansion, suffering an unexpected downturn in June that will likely drag down growth during the just past quarter.

Statistics Canada reported Friday that manufacturing sales fell a 0.5 per cent to $48.2 billion during the month, falling short of the consensus estimate of a modest 0.3 per cent gain, and revised the previous two months down.

The news was worse in terms of volumes, which directly impacts economic output, as production fell 1.3 per cent.

“Weakness in manufacturing sales in June is disappointing, particularly given that little of the weakness appears to have been the result of temporary disruptions due to severe flooding in Alberta in the month,” said economist Nathan Janzen of the Royal Bank, noting that in Alberta, sales rose 0.1 per cent.

The major weakness came in manufacturing’s heartland as sales fell 1.9 per cent in Ontario, with miscellaneous manufacturing responsible for the lion’s share of the decline. Motor vehicle parts were also slightly weaker

“Along with a drop in construction activity caused by a strike in Quebec, the expected decline in mining activity and today’s weakness in manufacturing are consistent with our expectation that GDP fell by 0.3 per cent in June, down from a 0.2 per cent gain in May,” Janzen added in a note to clients.

Statistics Canada noted factory sales have been slowly falling since the spring of 2012. During the second quarter alone, sales fell 3.2 per cent, the fourth consecutive decline.

Manufacturing is one of the few sectors that has yet to fully recover all the output, or jobs, lost during the 2008-09 recession.

The big losses in June came in the miscellaneous manufacturing sector, which plunged 20 per cent, while fabricated metal products fell by 6.5 per cent, and wood products by 7.7 per cent.

They were partly offset by a 7.4 per cent gain in the petroleum and coal industry.

Statistics Canada said sales fell in 16 of 21 industries, representing about 56 per cent of the manufacturing sector.

Analysts have been hopeful of that manufacturing will regain momentum as the United States, by far the largest foreign market for Canadian exporters, recovers and demand for such products as homes and autos rises.

Scotiabank economists pointed out that most of the forward-looking indicators in the manufacturing report — new orders up 2.5 per cent, unfilled orders up 2.7 per cent and inventories down 0.2 per cent — pointed to stronger sales down the road.

The Bank of Canada is also counting on a U.S. revival, along with a temporary rebound in construction following the Quebec strike and rebuilding from the Alberta floods, to boost economic activity by a strong 3.8 per cent this quarter, which began in July. The bank believes growth with settle to about 2.7 per cent for the next two years.