January Canadian Manufacturing Reports

The Canadian manufacturing sector's long trudge to recovery from the 2008-09 recession faltered in January as sales at the factory gate unexpectedly fell, but new signs of life in the U.S. export market offered hope the pace would pick up again.

Factory sales slid 0.9% in the month, dragged down largely by the aerospace sector but also by declines across 10 other industries, Statistics Canada said. Sales from auto assembly plants, however, rose to their highest level since November 2007.

Manufacturers have seen sales growth in five of the past seven months and January's downturn followed a 0.6% gain in December. Analysts had expected a 0.2% gain in January.

The decline could not be blamed on falling prices as volumes also fell 1.1%, which will likely weaken Canadian real gross domestic product figures for the month.

"Canada's manufacturing sector had also ended 2011 on a strong note, with five of the final six months of the year recording gains, and we won't put too much weight on one-month's data," says Leslie Preston, economist at TD Economics.

With most exports destined for the United States, Canada's manufacturing fortunes are closely tied to that of its neighbor.

"With economic news out of the U.S. coming in better than expected recently, we expect firmer U.S. growth to be supportive for Canada's manufacturing sector exports," Preston says.

Canada's status as one of the best performing economies in the G7 club of rich countries after the global financial crisis has faded this year while more upbeat data continues to roll in from the United States, its top trade partner.

The Canadian job market has sputtered since the middle of last year, exports fell in January after two months of gains and the country is grappling with soaring household debt that is widely seen as the biggest domestic threat to the recovery.

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