WRAPUP 1-Growth in Canada factory sales, productivity slows

*Pace of growth slows for factory sales, productivity

*Data not expected to dissuade central bank from rate hikes

*Metals, energy push up manufacturing sales

*Manufacturing leads productivity gains

*Hours worked rise at fastest rate in six years

By Louise Egan

OTTAWA, June 15 (BestGrowthStock) – Growth in Canadian
manufacturing sales slowed in April and productivity came in
lower than expected in the first quarter, hardening
expectations that second-quarter economic growth will be less
robust than in the previous two quarters.

Statistics Canada reported on Tuesday that higher prices
for primary metals pushed manufacturing sales up 0.2 percent in
April from March, slightly below expectations and sharply below
the 1.4 percent growth the previous month.

In volume terms, factory sales slipped 0.1 percent.

“Accordingly, lower volumes of manufacturing shipments
translate into the first manufacturing drag on the Canadian
economy in eight months with negative connotations for April
GDP growth,” said Scotia capital economists Derek Holt and
Gorica Djeric in a note to clients.

However, the economists do not see the start of a weakening
trend in the economy or consider the news bad enough to prevent
the Bank of Canada from raising interest rates in July and
later in the year.

“We do not think the Bank of Canada will be swayed by this
report,” they said.

The central bank hiked rates by a quarter point on June 1
and markets have priced in about an 85 percent chance of a
similar increase on July 20, according to the yields on
overnight index swaps. (BOCWATCH: )

Another Statscan release on Tuesday showed a disappointing
0.7 percent rise in labor productivity in the first quarter, a
weaker performance than expected as growing employment led to a
surge in the number of hours worked.

Markets had expected a 1.2 percent increase in
productivity, a measure of economic output per hour of labor,
following a gain of 1.2 percent in the fourth quarter.

Productivity in Canada lags that in the United States and
increasingly has become a concern for policymakers as an aging
workforce and a shrunken manufacturing base limit the economy’s
ability to create wealth in the long term.

The Canadian dollar edged up against the U.S. currency
immediately after the reports, but the move higher was largely
driven by firmer energy prices and strong demand for European
debt. It later fell back a little.

At 9:40 a.m. (1440 GMT), the Canadian dollar was at
C$1.0284 to the U.S. dollar, or 97.24 U.S. cents, up from
C$1.0325 to the U.S. dollar, or 96.85 U.S. cents, at Monday’s
close.

PACE SLOWING

Primary metals and petroleum and coal products led the gain
in manufacturing shipments in April, partially offset by a
decline in the food product industry.

Inventories expanded while new orders edged up and unfilled
orders slipped.

Analysts say the manufacturing sector has been rebounding
strongly in recent months and is likely to continue recovering,
albeit at a slower pace in the remainder of the year.

“The outlook for Canadian manufacturers in the second half
of the year will be more challenging as the waning impact of
fiscal and monetary stimulus on both sides of the border
results in more moderate growth in product demand,” said
Francis Fong, economist at TD Securities.

“In general, the manufacturing sector will likely chug
along its merry way as U.S. and global demand pick-up, and
while the Canadian economy continues its recovery,” he said.

Statscan attributed most of the productivity gains to the
goods-producing industries, led by manufacturing.

As the economy recovered and more people entered the job
market in the first quarter, hours worked increased 1.1
percent, a rate not seen since the second quarter of 2004.
Employment rose 0.7 percent.

Labor costs per unit fell 0.5 percent in the quarter as
productivity gains outpaced salary increases, Statscan said.

However, in U.S. dollars labor costs climbed 1.0 percent
due to the appreciation of the currency against the U.S.
dollar, while U.S. business labor costs fell 0.3 percent in the
same period.

Stock Market Trading

(Reporting by Louise Egan; editing by Peter Galloway)

WRAPUP 1-Growth in Canada factory sales, productivity slows