Source: The Canadian Press

Manufacturing in general and the auto sector in particular continue to be a weak link in Canada’s economic recovery, with the value of shipments slipping 0.6% in September.

Analysts had expected a bigger decrease of 0.9% but, coupled with a drop of 1.4% in volume of shipments, the data does not bode well for the economy’s overall performance.

“This was undoubtedly a negative report for the manufacturing sector,” said TD Bank economist Francis Fong.

“However, this was to be expected given the elevated level of the Canadian dollar, weak U.S. demand, and the moderating domestic economy.”

The retreat in sales to $45.1 billion was led by a 10.4% fall-off in the motor vehicle industry, reflecting lower production at several assembly plants.

But Statistics Canada noted declines were not limited to the auto sector, with 13 of 21 industries registering lower sales, representing two-thirds of the total.

Capital Economics analyst David Madani said the weakness in manufacturing could slow third quarter growth to as low as 1%, which would give Canada the weakest growth rate in the G7 for the period.

That is also considerably weaker than the Bank of Canada’s latest estimate of 1.6% growth in the third quarter, the July-September period. In the second quarter, the economy advanced by 2% following a 5.8% jump in the first three months of 2010.

“With little prospect of stronger global economic growth ahead, foreign demand for Canada’s exports is unlikely to buffer the slowdown in domestic activity,” Madani added.

In a new survey released Tuesday, Canada’s chartered accountants expressed growing pessimism about the state of the economy.

The latest poll of 329 executive chartered accountants found only 39% expressing optimism about prospects over the next 12 months, down 18 points from a similar sampling three months ago and lower than the mood a year ago.

Canada’s factory sector, concentrated in Ontario, was the hardest hit during the recession that began two years ago, shrinking by 28% and laying off 185,000 workers.

Since, the sector has recovered about 45% of its production, but remains about 18% below the pre-recession high.

Fong said manufacturing has gone through a transition since the slump and is now less dependent on the auto sector, and more on primary metals and production around the needs in the resource sector.

In September, transportation equipment industry declined 7.5% $7 billion. Sales in the motor vehicle parts industry decreased 6.1% to $1.6 billion, while production in the aerospace product and parts industry fell 5.7%.

Other industries with sales decreases included fabricated metal products (down 2%) and paper (down 1.8).

There were gains in the petroleum and coal products industry (up 6.2%) and the primary metal industry (up 3.3), both the result of price and volume increases.

Manufacturing sales dropped in Ontario, Quebec, New Brunswick and Saskatchewan while the remaining provinces advanced.

New orders fell 4.9% in September to $44 billion. The decline was concentrated mostly in the transportation equipment industry.