OTTAWA - Canada's manufacturing sector showed some weakness in October, a fresh and telling signal that the economy is braking sharply in response to lower global demand.
Manufacturing sales fell 0.8 per cent to $48.7 billion during the month, Statistics Canada reported Wednesday. Economists had expected a 0.6 per cent decline after September's 2.6 per cent surge, especially since export volumes were also dramatically lower in October.
The reading did not fall dramatically short of economist expectations, given that the previous month set the bar so high. But the outlook going forward is acting as an early warning that manufacturing activity will continue to slow, said analysts.
Statistics Canada noted new orders — a foreshadowing of future activity — fell a whopping 4.7 per cent, and unfilled orders were also down, 0.3 per cent.
As well, the backlog of unsold inventories continued to rise, up another 1.4 per cent, taking the measure to the highest since early 2009, noted Scotiabank economist Derek Holt.
"The broad details are worse than the headline, as they suggest a further loss of momentum in manufacturing over the duration of the quarter," He said.
"That's likely to shift manufacturing toward being a drag on gross domestic product growth in the fourth quarter, thus reinforcing the trade hit that is unfolding."
The economy is expected to slow to just over two per cent growth in the current fourth quarter, which concludes at the end of this month, after the third quarter's 3.5 per cent surprise.
With Europe already in recession, U.S. weakening and even emerging markets now entering a less expansive period, the next six months promise to be difficult for Canada, say analysts.
TD Bank on Wednesday revised its estimates for Canada's growth potential for next year and 2013 downward to an extremely slow 1.7 per cent and 2.2 per cent respectively. As well, it now predicts unemployment will climb to as high as eight per cent next year.
The most stark slowing will occur in the next six months, with growth braking to 1.7 per cent in the first three months of 2012, said TD economist Craig Alexander. A further decline of 0.5 per cent is predicted in the spring months, before starting a modest acceleration.
"Being a small open economy, much of Canada's performance depends on global events," TD chief economist Craig Alexander said in the report, "and the global and financial environment remains a key challenge for the Canadian economy."
Under this scenario, it would be expected that the factory sector, which is heavily invested in exports to the U.S., would be among the most impacted.
"This isn't the worst case scenario, this is a muddling through scenario," added Alexander.
The worst-case scenario would occur if policy-makers in Europe and the U.S. fail to deal with their fiscal problems, he said.
The manufacturing retreat in October was broadly based, with 13 of 21 industries or about two-thirds of Canadian manufacturing reporting declines.
The reduction in sales largely came from non-durable goods manufacturers, whose sales fell 1.8 per cent in October, while durable goods sales rose 0.2 per cent.
Sales of petroleum and coal products fell 4.3 per cent to $7.3 billion — still the industry's second-strongest in 2011.
Aerospace product and part manufacturers reported a 9.7 per cent drop in production to $1.3 billion in October. Sales declines also occurred in food (down 1.1 per cent) and paper (down 3.6).
Vehicle parts were up 6.2 per cent, computer and electronic products rose 6.3 and the wood products increased 5.2.
Seven provinces posted lower manufacturing sales in October, with the largest dollar decreases coming in Alberta, New Brunswick and British Columbia.