The bigger than expected drop was the latest piece of the picture for a second quarter that has shown show little improvement for the Canadian economy.
TD Bank economist Francis Fong noted that the manufacturing sector seemingly shrugged off the high Canadian dollar for most of 2010, helped by demand from both the U.S. and global economic recoveries.
"Going forward, the overall weak profile for economic growth among Canada’s key trading partners over the next few months is likely to weigh heavily on the manufacturing sector," Fong wrote in a note to clients.
"Sales will likely continue to struggle despite the thawing in global supply chains following March’s Japanese earthquake and the dollar having pulled back by almost five cents from just a few weeks ago."
The loonie lost 0.23 of a cent to trade for 101.82 cents US at the close of markets Tuesday.
Factory sales fell 1.5 per cent to $45.3 billion in June from May compared with a drop of 0.5 per cent that had been expected by economists.
Constant dollar manufacturing sales were down 1.6 per cent in June.
Sales of durable goods fell 1.9 per cent, while sales of non-durable goods were down 1.2 per cent. Lower sales were reported in 15 of 21 industries, representing 77.5 per cent of total manufacturing.
The drop in manufacturing sales came as the Conference Board of Canada predicted that corporate profits will soften over the next six months due to widespread weakness.
The board said its leading indicator of industry profitability fell 0.1 per cent in July after staying flat the previous two months as 18 out of 49 industries recorded a drop last month — the highest number since the fall of 2009.
CIBC chief economist Avery Shenfeld said the weak manufacturing data reinforces expectations for the Bank of Canada to keep interest rates low for the next couple of quarters.
"June now looks to be a weak month for the Canadian economy, and will play into the second quarter being a slightly negative quarter overall, although we expect the goods sector to add to growth again come the third quarter due to pickups in autos and energy products," Shenfeld wrote in a note.
In the U.S., the latest economic data painted a mixed picture as automakers rebounded in July to boost factory production by the most since the earthquake and tsunami in Japan and builders broke ground on fewer single-family houses, leaving home construction at depressed levels.
Overall U.S. industrial production, which includes output by utilities, mines and factories, rose 0.9 per cent last month, its largest gain of the year.
However, a separate report found that builders started work on a seasonally adjusted 604,000 homes last month, a 1.5 per cent decrease from June. Single-family homes, which represent 70 per cent of home construction, fell five per cent while apartment building rose more than six per cent.
The overall decline in Canadian manufacturing was due in large part to lower petroleum and coal sales, which fell 6.6 per cent in June due to lower prices and shutdowns for retooling at various plants.
Miscellaneous manufacturing sales fell 16.1 per cent after rising 2.4 per cent in May due to a drop in sales by manufacturers of jewellery and silverware.
Machinery manufacturing sales dropped 4.2 per cent in June after a 7.8 per cent increase in May.
Meanwhile, sales in the chemical industry gained 5.8 per cent on gains in the pesticide, fertilizer and other agricultural chemical industry.