Friday, October 26, 2007

Business Conditions Survey: Manufacturing industries

Manufacturers' optimism in the last two quarters waned as they looked ahead to the final three months of 2007. According to the October Business Conditions Survey, manufacturers indicated heightened dissatisfaction with the level of orders received, while production prospects weakened.

Although they remained positive in the fourth quarter of 2007, manufacturers were more guarded as they continued to face important labour shortages, coupled with ongoing pressures caused by the Canadian dollar reaching parity with the US greenback.

The Business Conditions Survey is a quarterly survey that requests manufacturers' opinions on production impediments, finished product inventory levels, new and unfilled order levels, and production and employment prospects in the coming three months. This voluntary survey was conducted in the first two weeks of October and attracted over 3,000 responses from manufacturers.

Manufacturers' outlook on production prospects weakens

In October, the proportion of manufacturers stating they would increase production over the next three months stood at 25%, up 3 points from July. This was largely offset by 23% of manufacturers stating they would decrease production, which was up from 15% in July. As a result, the balance of opinion stood at +2, a decrease of 5 points from the previous survey. Although lower, this was the third consecutive positive balance in 2007. Continuing positive production prospects were posted in Newfoundland and Labrador, Prince Edward Island, Nova Scotia, Ontario, Manitoba and Saskatchewan, while opinions in the remaining provinces were negative.

Producers in transportation equipment, machinery and electric equipment, appliance and components industries were the major contributors to the positive balance. In all, 10 of the 21 manufacturing industries posted a positive balance for production prospects in the fourth quarter of 2007.

Note to readers The Business Conditions Survey is conducted in January, April, July and October. The majority of responses are recorded in the first two weeks of these months. Results are based on replies from over 3,000 manufacturers, and are weighted by manufacturers' shipments or employment. Consequently, larger manufacturers have a correspondingly larger impact on the results than smaller manufacturers. Except for the data on production difficulties, data in this release are seasonally adjusted.

The balance of opinion was determined by subtracting the proportion of manufacturers who expected production would be decreasing in the coming three months from the proportion who expected production would be increasing.

Satisfaction with level of new orders down

In October, the balance of opinion concerning current levels of new orders dropped 9 points from the July survey to -3. The proportion of manufacturers who stated that orders received were declining edged up 3 points to 22% in October. In contrast, those stating new orders were rising fell 6 points to 19% in October. Although negative, the balance of opinion remains higher than the -13 posted one year earlier in the October 2006 survey. Producers in primary metal, paper, wood, and computer and electronics products industries were the major contributors to the lowered balance of opinion for orders received. According to August's Monthly Survey of Manufacturing, new orders for all manufacturing industries dropped 5.0% from July to just under $51.2 billion.

Manufacturers less satisfied with levels of unfilled orders

In October, 76% of manufacturers described the backlog of unfilled orders as normal, a 6 point increase from July. The October balance of opinion declined an additional 4 points to -9, largely due to a smaller proportion of manufacturers (8%) indicating that the current level of unfilled orders was higher than normal. Meanwhile, 17% reported a lower than normal backlog, comparable to the previous two quarters. Producers in the wood and paper industries were the major contributors to the negative unfilled orders balance of opinion. With the exception of the April survey, the balance of opinion for unfilled orders has been negative since October 2004, reaching a low of -23 in April 2005. According to August's Monthly Survey of Manufacturing, unfilled orders posted a slight decrease of 0.1% to almost $54.9 billion, the first decline in 12 months. Currently, the backlog of orders stands $13.6 billion higher than that of the same month one year ago.

Manufacturers slightly less concerned with finished product inventories

In October, 83% of manufacturers reported that the current level of finished product inventories was about right, up 3 points from July. Some 13% stated that inventories were too high, while 4% said inventories were too low. This left the balance of opinion at -9, a 2 point improvement from the July balance. According to August's Monthly Survey of Manufacturing, finished product inventories stood at over $22.4 billion, down 1.4% from the almost $22.8 billion posted one year earlier in the August 2006 survey.

Manufacturers' employment prospects remain unchanged

The October balance of opinion for employment prospects for the next three months remained unchanged from the July survey at +1. Some 64% of manufacturers stated that they would keep their current workforce, 18% indicated they would increase it, and 17% indicated that they expected to decrease employment in the fourth quarter of 2007. Regionally, negative balances in Quebec (-2) and Ontario (-9) were offset by positive balances in the remaining provinces, where many manufacturers continued to experience difficulty in finding skilled labour. According to the September Labour Force Survey, over the first nine months of 2007, manufacturing employment declined 3.7% to just under 2.04 million.

More manufacturers frustrated by production impediments

The proportion of manufacturers reporting production impediments jumped 8 points to 36% in the October survey. The main concerns cited were labour shortages, and the high value of the Canadian dollar. Most of the increase in concern related to skilled labour shortage, which jumped to 16% in October from 11% in July. Manufacturers in Manitoba (42%), Saskatchewan (58%) and Alberta (48%) continued to express the greatest concerns regarding skilled labour shortages.

Available on CANSIM: tables 302-0007 and 302-0008.

Definitions, data sources and methods: survey number 2152.

Business Conditions Survey data for January 2008 will be released on January 29.

For more information or to order data, contact the dissemination officer (toll-free 1-866-873-8789; 613-951-9497; fax: 613-951-9499; manufact@statcan.ca). To enquire about the concepts, methods or data quality of this release, contact Claude Robillard (613-951-3507; claude.robillard@statcan.ca), Manufacturing, Construction and Energy Division.

Business Conditions Survey: Manufacturing industries production prospects balance of opinion for select industries
	October 2006	January 2007	April 2007	July 2007	October 2007
	Seasonally adjusted
Major group industries
Non-durable goods	1	12	3	10	-11
Food	13	18	19	7	2
Chemical products	9	2	-5	15	2
Petroleum and coal products	57	11	-3	-10	-31
Paper	-13	19	8	-5	-17
Plastic and rubber products	-25	-25	-6	5	-11
Durable goods	-10	-1	6	2	15
Transportation equipment	-10	-19	4	16	25
Primary metal	-22	15	13	-26	4
Wood products	-12	-6	-9	0	-10
Fabricated metal products	-10	8	3	5	4
Machinery	1	-2	-2	-10	11
Computer and electronic products	-18	-24	19	-4	-33

Business Conditions Survey: Manufacturing industries
	October 2006	January 2007	April 2007	July 2007	October 2007
	Seasonally adjusted
Volume of production during the next three months compared with the last three months will be:
About the same (%)	62	59	62	62	52
Higher (%)	16	18	22	22	25
Lower (%)	22	23	16	15	23
Balance of opinion	-6	-5	6	7	2
New orders are:
About the same (%)	67	52	66	56	59
Rising (%)	10	25	22	25	19
Declining (%)	23	22	11	19	22
Balance of opinion	-13	3	11	6	-3
Present backlog of unfilled orders is:
About normal (%)	71	68	68	70	76
Higher than normal (%)	5	11	16	13	8
Lower than normal (%)	24	21	16	18	17
Balance of opinion	-19	-10	0	-5	-9
Finished product inventory is:
About right (%)	81	77	78	80	83
Too low (%)	5	3	5	5	4
Too high1(%)	14	20	17	16	13
Balance of opinion	-9	-17	-12	-11	-9
Employment during the next three months will:
Change little (%)	65	66	68	67	64
Increase (%)	15	15	17	17	18
Decrease (%)	20	19	15	16	17
Balance of opinion	-5	-4	2	1	1
	Unadjusted
	%
Sources of production difficulties
Working capital shortage	3	2	2	2	3
Skilled labour shortage	10	11	12	11	16
Unskilled labour shortage	6	4	4	4	6
Raw material shortage	4	4	4	4	5
Other difficulties	4	2	7	8	5
No difficulties	72	77	71	72	64
1. No evident seasonality.

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