Analysts had expected no change in manufacturing sales. Statscan revised September's performance to unchanged from an initial 0.4 percent increase. "A slowdown in emerging market growth and uncertainty related to the fiscal crises in both the US and Europe have all led to a deceleration in global economic momentum, especially in the second half of this year," TD Economics economist Francis Fong said in a note to clients.
The October drop was the greatest since a 2.4 percent retreat in January 2012. Analysts said the poor performance would affect October's growth figures, due to be released next Friday. The Bank of Canada has predicted fourth-quarter growth of 2.5 percent, annualised, which now looks rather optimistic. Canada's economy grew at a sluggish 0.6 percent pace, annualised, in the third quarter.
The Canadian dollar initially eased slightly to a session low against its US counterpart, to C$0.9852 versus the greenback, or $1.0150, from around C$0.9845, or $1.0157 before the release. It later recouped the losses. The October manufacturing report was weak across the board and showed sales declined in 12 of 21 industries, representing about 71 percent of the manufacturing sector.
In volume terms, sales were down 2.4 percent, the biggest decline since a 2.7 percent drop in January 2012. Sales in the motor vehicle assembly industry dropped by 3.7 percent to C$4.4 billion ($4.5 billion) while primary metals sales were down 2.8 percent to C$3.7 billion. The declines were partly offset by advances in the petroleum and coal product industry, where sales rose by 2.0 percent to C$7.4 billion. The inventory-to-sales ratio advanced to 1.36 from 1.32 in September while inventories grew by 1.3 percent. Unfilled orders were flat while new orders fell by 0.6 percent.