Source: The Canadian Press

Canadian manufacturers took a bit of a beating in July a sales fell almost a full percentage point in a further indication the summer was a soft period for the economy.

Statistics Canada said Wednesday factory shipments fell 0.9% to $44.3 billion, as the auto sector tumbled 8% and paper products and furniture makers also experienced outsized losses.

The contraction reverses a string of mostly positive results — 12 of the past 14 months showed gains — that saw factory activity rebound 15.5% since the recession-period floor of May 2009.

That still leaves the sector 12.5% shy of pre-slump levels, which had topped $50 billion in monthly sales.

Economists warned against reading too much into one report, but Scotiabank economist Derek Holt said the results point to future declines in the sector that paid the steepest price during the recession.

He noted a decline in unfilled orders of 1.2% and a 3.9% drop in new orders point to future softness in the immediate horizon.

As well, the sector, which depends on exports, is facing increased foreign competition due to the continued strength of the Canadian dollar, which is only a few cents from parity. It closed at 97.43 cents U.S. Wednesday.

“I don’t know where the momentum comes to reverse this if we have a waning new order book and a falling backlog of orders,” Holt said.

“To me that would suggest that manufacturing combined with net trade would be significant drags of gross domestic product growth in the third quarter growth.”

Scotiabank is now projecting third quarter growth in Canada could slow further to under 2%, following an anemic 2% advance in the second quarter and a 5.8% spike in the first. Manufacturing represents about 12% of the Canadian economy.

The Bank of Canada’s official forecast is for the economy to grow 2.8% during the July-September period, but governor Mark Carney said this week he expects to revise that downward when the next economic review is issued next month.

The biggest hurdle facing manufacturers remains the ongoing softness in the U.S. economy, which is depressing demand for imports, explained TD Bank analyst Shahrzad Mobasher Fard.

And here the news is mixed.

The latest data shows U.S. industrial production growth slowed to 0.2% in following a downwardly revised 0.6% gain in July that had previously been thought to be 1%, also due mainly to braking auto production.

Meanwhile, the New York manufacturing index fell back a full three points to a 14-month low, suggesting factories are through with rebuilding inventories and actual sales remain modest.

But recent retail sales figures revealed consumers may be ready to come out of hibernation, which does bodes well for Canadian exporters.

The shipments story in Canada was also not altogether negative.

The weakness in July was not widespread, with nine of the 21 industries managing to buck the trend, including a 3.2% rise in beverage and tobacco product manufacturing and a 1.2% increase in food sales.

A Conference Board study forecast the future remains bright for the food manufacturing industry, which did not go negative during the slump. The think-tank said domestic demand is expected to rise modestly, and the industry has moved aggressively into export markets.

Regionally, manufacturing sales were flat in Ontario and declined 2.9% in Quebec — two provinces that account for about three quarters of the sector. Newfoundland experienced the worst drop-off at 10.9% from June, while Manitoba posted the largest increase at 1.7%.