Canadian Factory Shipments Support Hot Economy Forecast

Manufacturing shipments fell 0.6 percent in April, but the headline number masks the underlying positive nature of the report.

OTTAWA (CP) - A new manufacturing shipments report suggests the Canadian economy is not being dragged down by the soaring Canadian dollar.

Manufacturing shipments fell 0.6 percent in April, but the headline number masks the underlying positive nature of the report.

Discounting the lower prices for shipments in the month, shipment volumes rose for the fifth month in the last six, increasing 0.5 percent.

Forward-looking indicators were equally positive with new orders rising 0.8 percent and unfilled factory orders, an indicator of future shipments, gaining 1.9 percent.

Even the modest headline decrease suggests continuing strength in the economy as it comes atop the very strong three percent increase in March, revised up from 2.8 percent previously announced by Statistics Canada.

The key weakness was the auto sector, which fell 11.2 percent. Excluding autos, shipments rose a strong one percent.

The factory shipments report also suggests that surprisingly strong U.S. demand and continuing robust domestic spending here in Canada are more than making up for the dampening impact of the high dollar, particularly in exported goods, said Sal Guatieri of BMO Capital Markets.

As well, elevated energy prices, global competition particularly in auto parts, and the gradual softening in the Canadian housing market, which will have reverberations in primary metals, furniture and lumber, means ''it's going to be a rough ride for manufacturers,'' Burleton said.

Still, it's unlikely the growth in the economy as a whole will slow down sufficiently to alter the Bank of Canada's tightening course.

Bank governor David Dodge gave his third public declaration in as many months of his intention to raise interest rates at a speech in St. John's on Thursday, noting that the economy is operating well above capacity and that inflation remains a risk to remain above the bank's two percent target for the rest of the year.

Canada's first quarter growth of 3.7 percent ''is now judged to be operating further above it's production potential than was earlier thought,'' he said. And while inflation's stubborn strength may be temporary, ''there is an increased risk that future inflation will persist above the two percent'' target.

More in Global