OTTAWA (CP) -- The Canadian manufacturing sector is getting weaker and a prolonged slump in the United States threatens the industrial economies of Ontario and Quebec as well as resources-producing provinces in Western Canada, says a bank report released Thursday.
The TD Bank report said the economies of manufacturing-heavy provinces will likely shrink by one percent in inflation-adjusted terms this year and fare only slightly better next year as exports of everything from autos and auto parts to lumber, machinery and furniture continue to get squeezed by the U.S. recession.
The TD report came after Statistics Canada reported that Canadian manufacturing sales declined 3.7 percent to $52 billion in August, erasing most of the gains from the previous two months.
The largest contributor to the decrease was the petroleum and coal products industry, where sales have fallen by nearly $1 billion in two months.
TD Bank said it expects a U.S. recession won't be short and will impact all parts of the Canadian economy -- the industrial companies in central Canada as well as the grain, minerals and energy sectors of the West.
"With U.S. consumers only beginning to retrench in their spending and clean up their household balance sheets, it would be too optimistic to expect a sharp recovery in the next few quarters," the TD report said.
"The export story is not, to simplify, just an Eastern economy story. Faced with elevated costs, lower energy and base metals prices on top of weaker demand for both, provinces west of Ontario, which have been the locomotives of the Canadian economy over the past few years, will be unwillingly reined in to join the infamous club of feeble growth."
Most provinces west of Ontario will struggle to reach two percent growth over the next year, TD warned.
In the Statistics Canada report, manufacturing sales measured in constant dollars, which provide an indicator of volume, fell 3.7 percent in August to $46.3 billion, their first decline in five months.
The declines in manufacturing sales were widespread in August, with 18 of 21 manufacturing industries -- accounting for 96 percent of total sales -- reporting declines.
Petroleum and coal product manufacturers accounted for almost a third of the drop, falling 7.7 percent in August, or more than $600 million.
Primary metal manufacturers also reported sales declined a sizable 7.9 percent, their first drop in 10 months.
The transportation equipment industry fell 4.3 percent in August. Sales by motor vehicle manufacturers dropped 4.3 percent, while sales by aerospace product and parts manufacturers fell 2.9.
Manufacturing sales fell in eight provinces in August, with only manufacturers in Saskatchewan and Manitoba managing increases at 5.7 percent and one percent respectively.
Manufacturing sales fell 15.4 percent in Atlantic Canada.
Manufacturing sales in Ontario decreased 3.1 percent.
Manufacturers reported a 0.3 percent rise in inventories in August, their sixth straight monthly increase.