9-19-17 10:07 AM EDT | Email Article
By Paul Vieira 

OTTAWA -- Canadian factory sales plunged in July on a pullback in auto production, in a further sign that the economy has hit a rough patch following a year of roaring growth.

Manufacturing shipments declined 2.6% in July on a seasonally adjusted basis to 52.51 billion Canadian dollars ($42.91 billion) from June, Statistics Canada said Tuesday. That was a steeper drop than the 1.7% decrease traders anticipated, according to economists at Royal Bank of Canada.

On a volume, or price-adjusted, basis, factory sales fell 1.4%.

A string of strong results positioned Canada as the fastest-growing economy in the Group of Seven industrialized countries over the 12-month period ended June 30. But dismal trade data, highlighted by a 4.9% decline in exports in July, and now Tuesday's manufacturing report suggest the economy struggled "to grow at all" in July, according to analysts at BMO Capital Markets.

The Bank of Canada raised its benchmark policy rate in July and September on stronger-than-expected economic data. A senior Bank of Canada official on Monday indicated that the central bank would gauge the economy's reaction to steeper borrowing costs and a stronger Canadian dollar when crafting policy.

The Canadian dollar has gained over 10% against the U.S. dollar since June. With that, comes worries that Canadian exporters, in particular noncommodity producers, might find it more difficult to sell their goods abroad.

July marked the second straight significant slide in Canadian factory sales, after a revised 1.9% decline in June. July's decrease is also the biggest month-over-month decline since February of last year, when sales fell 4.2% on a broad-based drop led by weak demand for autos, energy products and aerospace.

Due to the two-month pullback, Canadian factory sales advanced 3.4% in July on a year-over-year basis. In comparison, May's 12-month rise in factory shipment was 10.5%.

"The July manufacturing output data was less than encouraging, to put it mildly," said Brian DePratto, economist at TD Bank. "The second month of declines in both value and volumes suggest momentum may be fading somewhat at Canadian factories."

The data agency attributed the bulk of July's drop to the sale of transportation equipment -- mostly vehicles and auto parts -- which had their worst one-month showing in over eight years. Excluding auto sales, Canadian factory shipments rose 0.2% in July from the previous month.

Further, 11 of the 21 components Statistics Canada tracks to assemble the manufacturing report recorded increases in July, led by wood products, primary metals and nonmetallic mineral products.

Motor-vehicle sales weighed heavily on the results, down 19.9% to C$4.72 billion in July. Auto-parts shipments fell 11.3% to C$2.39 billion.

In its report, the data agency said shutdowns at auto assembly plants were "longer and more concentrated" in July compared with previous years. The agency added that auto makers tend to close their factories during the summer months to retool and conduct maintenance.

Meanwhile, inventories fell for a third straight month, 0.2% to C$73.71 billion.

Two forward-looking gauges also posted declines. Unfilled orders, or the stock of orders that will contribute to future sales assuming they aren't canceled, dropped 1.7% to C$86.21 billion, while new orders also fell by 1.7%, to C$51.05 billion.

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

 

(END) Dow Jones Newswires

September 19, 2017 10:07 ET (14:07 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.
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