Reuters reported that Canadian manufacturing sales fell by 0.8% MoM in May 2011 from April 2011, a drop that was significantly worse than expected as the auto industry failed to bounce back quickly from parts shortages resulting from the earthquake and tsunami that hit Japan in March 2011.

Statistics Canada said that 11 of 21 industries, representing 72% of manufacturing, posted sales declines. Non durables, especially food, energy and chemical products, led the way. The auto industry, suffering supply chain disruptions because of the disaster in Japan, fell a further 1.5% after April's 8.2% drop.

The median forecast in a Reuter's survey of economists was for a 0.2% decline in manufacturing sales in May, and the worst of 13 predictions was for a 0.6% fall. Sales in April had dropped 1.3%.

The data added to expectations that the auto industry problems and a deepening economic slowdown in the United States are likely to have triggered a dramatic hit to Canadian gross domestic product in the quarter just passed.

Mr David Tulk chief macro strategist at TD Securities said that "The second quarter is a lost cause."

Bank of Canada governor Mr Mark Carney has said growth would be in the 1% range in the quarter before rebounding in the second half of the year. The market expects the central bank to keep interest rates unchanged at its next policy announcement date on July 19th 2011.

A recent Reuter's survey of 21 economists showed Canadian GDP growth is expected to have slowed to an annualized 1.5% in the second quarter from 3.9% in January to March 2011 period. That is a big drop from the 2.7% second quarter growth rate forecast in a poll just three months ago.

Another data point for the second quarter, released by Statscan, showed nonresidential building construction up by a seasonally adjusted 0.1% after a 1.1% rise in the first quarter. However, the industrial and commercial components were up by a more substantial 0.8%, while institutional building fell.

(Sourced from www.reuters.com)