Factory sector continues rebound as sales jump 0.6 per cent in September

OTTAWA – Canada’s factory sector continued to rebound in September to the highest level in almost a year as sales expanded a better than expected 0.6 per cent.

Even more critical, volume sales rose a promising one per cent, which should bode well for economic growth in the month and the third quarter overall when the data is released at the end of November.

The big movers were autos and the food industry as overall sales rose to $49.9 billion for the month, the highest level since November 2012.

“Manufacturing sales ended the third quarter on a strong note and, as a result, volume sales managed to post their first quarter of expansion since the second quarter of 2012,” Jimmy Jean of Desjardins Capital Markets wrote in a note to clients.

David Madani, chief economist with Capital Economics, said he believes the economy likely expanded by 0.2 per cent in September from August and that the third quarter as a whole might come in stronger than 2.5 per cent annualized. This would significantly best the Bank of Canada’s bearish 1.8 per cent forecast.

Manufacturing has been one of Canada’s weakest sectors, but with the September performance it has now recorded gains in four of the past five months.

Still, economists cautioned against interpreting the rebound as a turning point, given the sector’s reliance on foreign demand.

Scotia Capital economist Derek Holt noted that the pipeline is lean as new orders fell 2.6 per cent, the third consecutive monthly decline. On the flip side, inventories dipped by 0.9 per cent.

The longer-term hope for the industry remains that a rebounding U.S. economy will lead to greater demand for Canadian exports of manufactured goods, particularly cars and parts, machinery, aerospace and wood products.

Sales rose in 11 of 21 industries, representing about 55 per cent of manufacturing, led by motor vehicles up 5.4 per cent and parts up 2.5 per cent. Food sales increased by 2.6 per cent.

However, primary metal manufacturers, aerospace products and parts, petroleum and coal products, fabricated metal products and the computer and electronic product industries all registered declines.