BUSINESS

Factory sector bounces back as economy recovers from February swoon

05/16/2012 08:46 EDT | Updated 07/16/2012 05:12 EDT
OTTAWA - A new report on manufacturing suggests the Canadian economy rebounded in March, reversing the previous month's surprising contraction and pointing to a resumption of modest growth.

Statistics Canada said Wednesday that factory shipments rose by a bigger than expected 1.9 per cent to $49.7 billion during the month after two consecutive declines.

The robust report — the biggest gain since last September — also included strong future indicators as new orders were also up by two per cent.

"Not much to rant about with this report," said economist Jimmy Jean of Desjardins Securities. "While it is still early to pinpoint March GDP (gross domestic product), this gain supports the view for a strong rebound during the month."

Given that Canada's GDP contracted by 0.2 per cent in February, analysts said it is still unlikely the economy will meet the Bank of Canada's call for a 2.5 per cent gain for the first quarter of 2012, but the bounce-back does show the economy began growing again.

Statistics Canada had earlier reported that March also saw a rebound in job creation with the addition of 82,300 new jobs, followed by 58,200 in April. The agency will report the GDP numbers for March and the first quarter at the end of the month.

The Canadian number was matched by a consensus-beating U.S. report showing industrial production south of the border rose by 1.1 per cent in April, the strongest month in about a year and a half.

As well, U.S. builders broke ground on an annualized seasonally 717,000 homes in April, an indicator America's battered housing market may be on the mend.

"Looking ahead, we anticipate that stronger U.S. demand will be the driving support for the (manufacturing) sector," said TD Bank's Francis Fong.

"However, there is no shortage of challenges and risks. With Europe struggling to contain its sovereign debt crisis, exports to the region have fallen substantially since late last year. In addition, the high Canadian dollar remains an ever present hurdle for Canadian manufacturers."

A new report from the Institute for Research on Public Policy suggests the strong dollar has negatively impacted 25 per cent of total factory output, mostly in small, labour-intensive industries such as textiles and apparel.

The report, which attempts to debunk the notion that Canada's increased reliance on oil exports is hollowing out Central Canada's manufacturing base — a phenomenon known as Dutch disease — concludes that cyclical factors and global competition is mostly to blame for the decline in factory production in Canada over the past decade.

The issue was given great impetus last week after NDP leader Thomas Mulcair blamed Alberta's oilsands for some of the difficulties facing manufacturers.

March's rebound doesn't settle the question, but suggests the recent softness was due to temporary factors.

Statistics Canada said sales in March rose in 13 of 21 industries and in seven of 10 provinces, representing just over three-quarters of the manufacturing sector.

Sales of petroleum and coal products increased 4.5 per cent to $7.5 billion — the highest level since July 2008 — mainly due to higher sales volumes at many oil refineries.

In the chemical industry, sales rose 3.2 per cent to $3.9 billion, with most manufacturers reporting higher sales.

Transportation also bounced back strongly from a week February, with motor vehicle sales rising 2.3 per cent and aerospace by 9.9 per cent.