Monthly Survey of Manufacturing

Manufacturing shipments continued on an erratic course in January as the ever-volatile motor vehicles and parts industries pulled down total shipments, despite strength in several resource-based industries.

Shipments declined 0.7% to $51.8 billion in January, following a 1.8% advance in December. A substantial drop in motor vehicles and parts manufacturing largely contributed to January's weakness. Excluding the motor vehicles and parts industries, shipments actually edged up by 0.3%.

The unpredictable state of manufacturing

Over the past 18 months, the manufacturing sector has experienced considerable volatility as some key industries struggled, while strong global demand fuelled expansion in other industries. This has also generated some significant disparity across the country in terms of shipment activity.

The soaring value of the Canadian dollar, which recently closed at a 14-year high, has been a source of challenge for manufacturers. The majority of products produced in Canada are sold abroad, and the high-valued dollar makes Canadian exports more expensive in the global marketplace.

Shipments fall despite strength in most industries

January's decline was not widespread as only 7 of the 21 manufacturing industries reported lower shipments, although these industries accounted for just over one-half of the value of total shipments.

Although seven provinces posted decreases in January, Ontario (-$554 million or -2.1%) was the hardest hit of the lot. Sustained strength among Quebec's manufacturers (+$146 million or +1.2%) and a big bounce-back in Manitoba (+$103 million or +9.8%) following a weak December, partly offset the decline overall.

Continued volatility in the transportation equipment sector

In January, temporary plant closures and production slowdowns at some factories contributed to declines in the manufacturing of motor vehicles and parts. Shipments of motor vehicles tumbled by 4.6% to $5.4 billion, the third decrease in a row.

Meanwhile, manufacturers of motor vehicle parts lost most of the substantial gains of December (+8.6%) as shipments fell 7.6% to $2.6 billion.

The automotive sector has been quite unpredictable over the past year. Canada is home to the assembly of several popular models in North America. Nevertheless, soaring gas prices, fickle consumers and lagging sales, despite tempting retail incentives, were among several factors contributing to some major announcements of restructuring in the motor vehicle manufacturing industry planned over the next few years.

Other industries reporting lower January shipments included railroad rolling stock (-30.9%) and paper (-4.2%) manufacturing.

Resource-based industries offset some of the decline

Despite January's decrease overall, the majority of industries posted higher shipments.

Robust global demand and soaring industrial prices fuelled a 4.8% jump in shipments of primary metals to $4.2 billion in January. Primary metal prices surged 3.0% in January, led by strong demand for aluminium, nickel and zinc products.

Above-average temperatures this winter have contributed to plenty of construction activity in North America, and consequently a rise in the price of lumber products (+1.6%). As a result, shipments of wood products rose 1.8% to $3.0 billion in January, the highest level since May 2005.

Factory job losses versus productivity

According to the latest Labour Force Survey for February, there have been just over 106,000 (-4.7%) factory jobs lost compared to the same period one year ago. Yet, several manufacturing industries have been gradually improving their rates of capacity utilization.

Manufacturers used 84.7% of their production capacity in the fourth quarter of 2005, up from 84.1% in the previous quarter. According to the latest release of industrial capacity utilization rates, foreign demand for durable goods, such as automotive products, machinery, and plastics and rubber products, were among the industries contributing to the rise in the capacity rate.

Despite the month-to-month volatility in shipments and thousands of job losses, many manufacturers continue to hold their own, a possible sign of improved productivity and efficiency gains through restructuring, at least in some industries. The trend for shipments, although levelling off in recent months, has remained positive through much of the last year.

At 1997 prices, total shipments fell back 1.0% to $47.7 billion in January, following December's volume-based surge in constant dollar shipments (+1.5%).

Finished product inventories on the rise

Manufacturers' inventories continued to accumulate in January, rising 0.3% to $66.3 billion at month's end. Inventories have been on a gradual rise for about two years.

A 0.9% decline in goods-in-process inventories partly offset increases in finished products (+1.1%), and raw material (+0.5%) inventories.

The inventory-to-shipment ratio edges higher

January's drop in shipments contributed to an up-tick in the inventory-to-shipment ratio. The ratio edged up to 1.28 from 1.27 in December, although it remained shy of the year high of 1.31 set in July 2005. The volatility of shipments in recent months has also contributed to some flux in the ratio.

The inventory-to-shipment ratio is a key measure of the time, in months, that would be required in order to exhaust inventories if shipments were to remain at their current level.

Backlog of unfilled orders on the climb

Unfilled orders rose 1.0% to $43.2 billion in January, the fourth successive increase. As a result, the backlog of unfilled orders stood at the highest level since November 2002 ($43.3 billion), and has risen 11.5% compared to one year ago.

Unfilled orders have been on a positive trend since December 2004, with industries such as machinery and aerospace contributing to the rise.

Although the build-up of unfilled orders may be regarded as a sign of future production, assuming contracts are not cancelled, the recent backlog could also be an indication of the lack of production capacity. For example, by the fourth quarter of 2005, machinery manufacturers increased their capacity utilization to 89.2%, the highest rate posted since the fourth quarter of 1997.

The scope of January's boost in orders was wide ranging with increases reported by several big-ticket industries including fabricated metal products (+3.1%), heavy duty trucks (+8.7%) and computers (+1.7%).

New orders steady

Following a surge in December, manufacturers' level of new orders remained stable at $52.2 billion in January. Extensive decreases in the transportation equipment sector offset advances in new orders for fabricated metals products, primary metals and machinery.

The 2005 annual review of manufacturing shipments will be released in the spring.

Available on CANSIM: tables 304-0014, 304-0015 and 377-0008.

Definitions, data sources and methods: survey number 2101.

All data are benchmarked to the 2001 Annual Survey of Manufactures.

Data from the February Monthly Survey of Manufacturing will be released on April 13.

For general information or to order data, contact the dissemination officer (1-866-873-8789; 613-951-9497; fax: 613-951-9499; manufact@statcan.ca).

To enquire about the concepts, methods or data quality of the release, contact Russell Kowaluk (613-951-0600; kowarus@statcan.ca), Manufacturing, Construction and Energy Division.