By Louise Egan and Randall Palmer
OTTAWA (Reuters) - Canadian manufacturing sales unexpectedly fell in August, likely dampening economic growth in the month as the outlook for the sector remains murky in light of the fiscal standoff in its top market, the United States.
Factory shipments sank 0.2 percent from July to a seasonally adjusted C$49.5 billion ($47.6 billion) in the month, dragged down by weakness in the vehicle assembly and food industries as well as an outsized drop in the small jewelry and silverware sector, Statistics Canada said on Wednesday.
Analysts surveyed by Reuters had predicted a 0.2 percent gain in August. Eleven of 21 industries registered setbacks.
The volume of sales, used in calculating gross domestic product, fell 0.3 percent.
The report suggests manufacturing will contribute little to monthly GDP and supports the Bank of Canada's move to downgrade its growth forecast for the third quarter to between 2.0 and 2.5 percent from 3.8 percent, annualized.
"Manufacturing has stagnated in 2013 and not much positive momentum should be expected over the balance of the year as the prospects of a healthy recovery in the U.S. into the fourth quarter look precarious," said Mazen Issa, an economist with TD Securities.
After weeks of bitter fighting, U.S. lawmakers prepared on Wednesday to put forth a proposal to raise the debt limit and reopen a partially shuttered government in hopes of avoiding a historic default which could throw the economy back into recession.
Canada sells about 75 percent of its exports in the United States.
"Even if a short-term deal is brokered to extend the deadline into early next year, uncertainty will hang in the balance leaving the Canadian manufacturing industry in limbo," Issa said in a note to clients.
Year on year, sales were up by just 0.3 percent in current dollar terms and down 2.1 percent in volume.
Growth in the Canadian economy has disappointed this year, Bank of Canada Governor Stephen Poloz said on Friday, and August trade data released last week showed exports were still not providing the much-wanted boost in the third quarter.
Factory sales and exports both remain below their pre-recession peaks.
In August, motor vehicle assembly plants saw their sales slide 2.5 percent, reflecting unusually meager gains after maintenance shutdowns in July, Statscan said. Excluding autos, sales were flat in August.
Food industry sales slid 1.6 percent and sales in the miscellaneous category, representing about 2 percent of total sales, plummeted 22.6 percent due to a drop in jewelry and silverware.
Aerospace products and parts and the primary metals industry offset the declines with gains of 17.8 percent and 3.0 percent, respectively.
Demand for aerospace shipments helped nudge up new orders by 0.1 percent and also helped explain the 0.4 percent increase in unfilled orders in August.
Manufacturers expanded their inventories by 0.3 percent, continuing a trend that began in 2010. The inventory-to-sales ratio was unchanged at 1.39.
(US$1 = $1.04 Canadian)
(Reporting by Louise Egan and Randall Palmer; Editing by Krista Hughes and Andrea Ricci)
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