Latest Canada Data A Mixed Bag
--Manufacturing sales decline for first time in four months--Leading indicator up more than expected in November
--Economists expect exports to drag on growth
By Nirmala Menon Of DOW JONES NEWSWIRES
OTTAWA -(Dow Jones)- A pair of reports from Statistics Canada Wednesday offered a mixed picture, but didn't substantially change the widely held view among economists that exports will drag on growth as the global economy slows amid concerns about spillover from the euro-zone debt crisis.
Canadian factory sales shrank a sharper-than-expected 0.8% to C$48.66 billion in October, the first decline in four months, as sales of petroleum and coal products and aerospace products and parts fell.
But the composite index of leading indicators, a forward-looking measure, rose a faster-than-expected 0.8% in November, the strongest gain in five months, driven by a pickup in manufacturing amid signs of an improving U .S. economy.
Economists had already anticipated trade to drag on growth in the fourth quarter after StatsCan said last week exports fell 3% in October, the sharpest decline in eight months. Manufacturing shipments make up roughly 60% of exports.
"We've triangulated a weak start for net trade going into Q4," David Tulk, chief Canada macro strategist at TD Securities, said in an interview, adding that growth in October through December will likely slow to an annualized rate of around 2% from 3.5% in the third quarter. He said the leading indicator incorporates some manufacturing data from September that have been overtaken by the October report.
Economists at TD Wednesday cut Canada's growth forecasts for the next two years. They now see the economy growing 1.7% in 2012 and 2.2% in 2013 versus previous forecasts of 1.9% and 2.6%, respectively. But they still expect the Bank of Canada to wait until 2013 before hiking interest rates.
According to Derek Holt, vice-president of Scotia Capital Economics, parts of the leading indicator "is not terribly leading at all."
"It can serve as a decent guide to near-term growth, but at the same time, it's thrown off many false signals over
time. It has difficulty keeping up with financial market shocks," Holt said in an interview.
Emanuella Enenajor, an economist at CIBC World Markets, said improving industrial production in the U.S. will help Canadian industries such as machinery and metals and vehicles.
"There's definitely near-term strength in the Canadian economy, however there are concerns whether that's going to be sustained going forward," Enenajor said in an interview.
Meanwhile, another StatsCan report showed that sales of new motor vehicles rose 3.3% in October, the second consecutive gain, but the statistical agency said preliminary industry data indicate sales shrank 1% last month.
Website: http://www.statcan.gc.ca
(END) Dow Jones Newswires
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