OTTAWA - Canada's troubled manufacturing sector continues to show promise that it is emerging from one of its worst downturns by posting a stronger-than-expected gain in March.
The 1.2 per cent pick-up, led by strong activity in the auto and food production sectors, was doubly promising because it occurred during a month when the dollar was beginning its rise toward parity with the U.S. currency.
And sales volumes were strong, up 1.7 per cent in a seventh consecutive monthly advance.
"Today's report was certainly positive news for manufacturers," said TD Bank economist Francis Fong. "The sector will be a major contributor to first-quarter Canadian real GDP (gross domestic product) growth."
Manufacturing is a key component of the Canadian economy and the performance in March has solidified expectations that the economy grew by between five and six per cent in the first quarter of 2010, following a five per cent increase in the last quarter of 2009.
That's strong growth, even though it is coming from a lower base due to the contraction suffered in last year's recession.
The outlook was also strong in the U.S., where both retail sales and industrial production beat economists' expectations, posting advances of 0.4 per cent and 0.8 per cent respectively in April.
But economists also sent up some warning flags, especially given that the European debt crisis appears far from resolved and some EU countries are preparing to go beyond withdrawing stimulus by putting in place austerity measures that will slow future growth.
And even through manufacturing in Canada is now up 10 per cent year-over-year, it still lags pre-recession activity by about 20 per cent.
The March number does give the Bank of Canada added impetus to put June 1 in play for the first rate hike in many months.
Still, Dawn Desjardins of RBC Financial says the uncertainty about the global economy means bank governor Mark Carney "will likely implement a program of gradual rate increases to ensure that Canada's recovery is not derailed."
In March, Statistics Canada said sales gained in 12 of 21 industries, with food manufacturers rising by 3.5 per cent over February, and motor vehicle sales by 3.6 per cent. However, the gain in vehicle manufacturing was largely offset by a 9.6 per cent decrease in aerospace products and parts production.
Inventory levels fell 1.1 per cent, and the backlog of unfilled orders declined for the first time in four months, down 0.4 per cent to $53 billion. New orders decreased 0.7 per cent in March to $44.3 billion.
