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Manufacturing sales slip in June, could push GDP into red

The Toronto's warehouse of paint manufacturing company Akzonobel on Keele St., photogrpahed for Property Report, Toronto August 15 , 2011. Photo by: Fernando Morales/The Globe and Mail

Fernando Morales/Fernando Morales/The Globe and M

Canada's economy may have contracted slightly in the second quarter, but economists aren't worried about a double-dip recession.

Observations about the possibility of a second-quarter dip in gross domestic product arose from a Statistics Canada report Tuesday that showed a 1.5-per-cent decline in sales among the country's manufacturers in June – well below what was expected, and the third-consecutive monthly drop.

Economists said the one-month showing in manufacturing may have helped push GDP to a negative showing for the full quarter. In April, real GDP was flat and it fell 0.3 per cent in May. Statscan is to report real GDP readings for the second quarter on Aug. 31.

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That would no doubt add to fears about the slowing global economy, a trend highlighted by GDP figures reported in the past two weeks that show below-expected growth in the United States and across the European Union, and a decline in Japan. Germany's economy, usually Europe's strongest performer, expanded by only 0.1 per cent, and France stalled with no growth in the second quarter.

"Overall, on a trend basis, we've been seeing weak economic growth all across the advanced world," said economist Francis Fong of Toronto-Dominion Bank. "Canada's not isolated from that."

Canadian manufacturing sales had grown steadily since the 2008-2009 recession, before declining in both April and May. June sales were down in six provinces, with Ontario, Quebec and Newfoundland reporting the largest drops.

Manufacturing accounts for 13 per cent of Canada's GDP, according to the industry group Canadian Manufacturers & Exporters.

"This could potentially put Canada's [GDP]in the red," said Mr. Fong, who, like some other economists, said the economy may have contracted in the second quarter.

Mr. Fong and others said it's not a certainty that the economy contracted, and, regardless, they don't project a double-dip pullback. Some expect manufacturing to rebound in the latter half of the year.

Nationally, June manufacturing sales dropped in 15 of 21 industries. Sales of petroleum and coal products had the biggest impact on the overall decline, dropping 6.6 per cent to $5.8-billion in June as prices fell and some plants shut for retooling.

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Miscellaneous manufacturing sales fell 16.1 per cent, mainly reflecting a drop in sales by the manufacturers of jewellery and silverware. Machinery sales declined 4.2 per cent.

Sales in the chemical industry were a bright spot, rising 5.8 per cent because of gains in the pesticide, fertilizer and other agricultural chemicals industry.

But the overall decline in manufacturing sales was much worse than most economists had expected.

"Obviously, it's bad news," said Jean-Michel Laurin, vice-president of global business policy at Canadian Manufacturers & Exporters. "It confirms what we've been seeing – that manufacturing sales have been declining somewhat over the last few months."

Krishen Rangasamy, senior economist at National Bank Financial Group, said the past few months may not indicate a trend. He expects Canada's July manufacturing numbers will show an improvement, following reports that the U.S. auto industry grew by 5.2 per cent in July.

"Our optimism for Canadian factories is based on that. We think we're going to get a bounce in July, the question is how much of a bounce. It's too early to say, so we're cautiously optimistic," Mr. Rangasamy said.

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Harvie Andre, chief executive officer of Alberta-based Wenzel Downhole Tools Ltd., said he's still feeling optimistic about his company's future. Wenzel makes drilling machinery for the oil industry.

"We had a little bit of a seasonal decline, but nothing exceptional," Mr. Andre said. "We've been busy."

He said the company, which employs about 220 people, has been hiring in recent months.

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About the Author
Parliamentary reporter

Kim Mackrael has been a reporter for The Globe and Mail since 2011. She joined the Ottawa bureau Sept. 2012. More

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