Surprise jump in Canada factory sales could lift growth

By David Ljunggren

OTTAWA (Reuters) - Strong food shipments pushed Canadian factory sales in October to their highest level since May 2012, an unexpected development that could help underpin fourth-quarter economic growth.

Statistics Canada said on Tuesday that manufacturing sales in October rose by 1.0 percent from September to hit C$50.09 billion ($47.25 billion). Analysts had forecast a 0.3 percent decline.

Overall factory shipments rose by 2.6 percent from October 2012, the biggest year-on-year jump since a 3.6 percent increase recorded in July 2012.

Since the 2008-09 recession Canadian companies have struggled to cope with weak markets and a strong Canadian dollar. Many analysts are looking for signs the manufacturing sector might be starting to recover.

"The print points to gross domestic product upside in the fourth quarter," said Derek Holt of Scotiabank Economics.

"November's strong industrial output in the U.S., which was focused on autos, has us expecting autos strength in Canada in November too. The bottom line is that manufacturing is looking up for the fourth quarter," he said in a note to clients.

The Bank of Canada forecasts annualized GDP growth of 2.3 percent in the fourth quarter, down from 2.7 percent in the third.

Food sales jumped by 6.9 percent in October - the largest gain since the current Statscan series started in January 1992 - on noteworthy gains in the meat, dairy, other food and grain and oilseed milling sub industries. This year's Canadian canola crop was a record.

The Canadian dollar was little changed against the U.S. dollar after the release of the data but later weakened. At 11 a.m. it was at C$1.0603 to the greenback, or 94.31 U.S. cents, down from Monday's close of C$1.0587, or 94.46 U.S. cents.

Sales advanced in 13 of 21 industries in October, representing 49 percent of the manufacturing sector. In volume terms, which matters most for gross domestic product growth, sales rose by 1.0 percent.

"A stronger U.S. economy that weathered the government shutdown with little lasting damage bodes well for Canadian manufacturers through the fourth quarter," TD Securities strategist David Tulk said in a note to clients.

New orders jumped by 5.9 percent on strength in the volatile aerospace industry, where sales can fluctuate significantly from month to month. Chemical sales advanced by 2.8 percent.

Sales in the transportation equipment industry fell by 1.7 percent, while motor vehicle assembly industry sales dropped by 1.9 percent. Shipments in the aerospace product and parts industry fell by 4.5 percent.

David Madani, an economist at Capital Economics, took a more somber view of the data, noting that sales were unchanged if the food sector was excluded.

"The weakness of sales in most other categories ... indicates that conditions remain very challenging for Canada's manufacturers," he said in a note to clients.

($1=$1.06 Canadian)

(Reporting by David Ljunggren; Editing by Theodore d'Afflisio; and Peter Galloway)

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