Thursday, November 15, 2007

Monthly Survey of Manufacturing

Manufacturing sales declined 0.9% in September, continuing a weakening trend observed over the past six months. Sales of manufactured goods decreased to $50.4 billion from the $50.8 billion reported in August, and reached the lowest level posted since October 2006. Additionally, third quarter sales were 1.8% lower than those in the second quarter of 2007.

Using constant dollars, which take price fluctuations into account, the volume of sales edged up 0.1% to $49.6 billion in September. On a year-over-year basis, manufacturing sales were 2.1% higher than in September 2006 on a constant-dollar basis. The US exchange rate continued to play a major role in manufacturing sales as the Canadian dollar appreciated 3.1% against the greenback compared to August.

Most industries weakened in September, with the exception of the transportation equipment industry, which reported a solid increase in sales compared to August. Manufacturing sales decreased 2.7% in September, excluding motor vehicle and parts sales.

On an industry-by-industry basis, 15 of 21 manufacturing industries decreased in September, representing about two-thirds of total sales.

Note to readers Preliminary estimates are provided for the current reference month. Estimates, based on late responses, are revised for the three prior months. Non-durable goods industries include food, beverage and tobacco products, textile mills, textile product mills, clothing, leather and allied products, paper, printing and related support activities, petroleum and coal products, chemicals, and plastics and rubber products. Durable goods industries include wood products, non-metallic mineral products, primary metals, fabricated metal products, machinery, computer and electronic products, electrical equipment, appliances and components, transportation equipment, furniture and related products, and miscellaneous manufacturing. Unfilled orders are a stock of orders that will contribute to future sales assuming that the orders are not cancelled. New orders are those received whether sold in the current month or not. They are measured as the sum of sales for the current month plus the change in unfilled orders. Some people interpret new orders as orders that will lead to future demand. This is inappropriate since the "new orders" variable includes orders that have already been sold. Readers should note that the month-to-month change in new orders may be volatile. This will happen particularly if the previous month's change in unfilled orders is closely related to the current month's change. Not all orders will be translated into Canadian factory sales because portions of large contracts can be subcontracted out to manufacturers in other countries. Also, some orders may be cancelled.

Sales of durable goods advanced 0.6% in September. This was the second increase in the past three months, and reflected sizeable gains in the transportation equipment industry in July and September. Non-durable goods sales continued to slump, decreasing 2.5% for a fourth consecutive monthly decline.

New orders dropped 2.5% in September after an even sharper 5.4% plunge in August. Unfilled factory orders decreased for the first time in a year, down 1.3% from August.

Broadly based weakness reported in September sales

Only six industries reported stronger sales in September, led by an 8.1% gain in the transportation equipment sector. Automotive manufacturers posted a 16.5% increase in sales after a weaker-than-normal August. Aerospace manufacturers also saw an increase in production, with a 3.8% gain in September, following a similar-sized increase in August. Despite the gains in the transportation equipment industry in September, year-to-date sales were only 0.8% higher than in the first nine months of 2006.

Computer and electronic manufacturers led the widespread losses in September, as sales plunged 11.9%. This was a notable reversal as manufacturers in the industry had reported gains in each of the previous three months.

Wood product manufacturers reported continued weakness, with sales dropping 4.9% to $2.0 billion in September. This was the third consecutive monthly decrease. Ongoing strikes in Western Canada were the most immediate cause for the drop, although soft lumber prices and slumping demand in the US also had an impact. Sales of manufactured wood products have been falling steadily for the last three years since reaching $3.2 billion in August 2004.

Labour unrest in the wood manufacturing industry also had a spill-over effect on the paper manufacturing industry. Paper product manufacturers use many by-products from sawmills, and as a result of the strikes in Western Canada, some plants reported problems in procuring sufficient raw materials. Sales dropped 6.0% in September following gains in July and August.

Most provinces slump in September

Manufacturing sales decreased in seven provinces in September. Most of the weakness was focused on the East and West Coasts, with the interior provinces faring slightly better.

Provincial sales in Newfoundland and Labrador (-13.1%) and New Brunswick (-11.6%) tumbled in September. Sales in both provinces dropped largely due to decreases in the non-durable goods industries.

In the West, sales by manufacturers in British Columbia decreased 3.7% to $3.5 billion. Paper product manufacturers slumped 14.4%, losing $75 million in production compared to August. Wood product manufacturers continued to drop, losing 4.1% in September for a fifth consecutive monthly decline.

Saskatchewan and Ontario were the two relatively bright spots in September. Provincial manufacturing sales jumped 3.7% in Saskatchewan, exceeding $1.0 billion for the first time on record. Most of the gains in September were due to chemical manufacturers, and electric equipment, appliance and component manufacturers.

Sales in Ontario rose 0.7% in September, almost entirely due to a 9.7% rebound in sales by the transportation equipment industry.

Manufacturing sales, provinces and territories
	August 2007r	September 2007p	August to September 2007
	Seasonally adjusted
	$ millions		% change
Canada	50,835	50,403	-0.9
Newfoundland and Labrador	477	415	-13.1
Prince Edward Island	116	124	6.8
Nova Scotia	826	826	-0.1
New Brunswick	1,478	1,307	-11.6
Quebec	12,341	12,134	-1.7
Ontario	23,929	24,086	0.7
Manitoba	1,357	1,353	-0.3
Saskatchewan	990	1,027	3.7
Alberta	5,662	5,610	-0.9
British Columbia	3,652	3,517	-3.7
Yukon	2	3	37.7
Northwest Territories including Nunavut	4	3	-24.2
r revised p preliminary

Unfilled orders down for the first time in a year

For the first time since August 2006, manufacturers' unfilled orders decreased. Despite falling 1.3% in September, unfilled orders remained 31.3% higher than September 2006. Unfilled orders are considered by many analysts as an indicator of future shipments, assuming orders are not cancelled.

Aerospace product and part manufacturers reported a 1.6% or $386 million drop in unfilled orders compared to August. However, many Canadian aerospace product manufacturers report their orders and sales in American dollars. Much of the decrease in unfilled orders was due to a rapidly changing exchange rate rather than a decrease in the volume of orders, as the US dollar weakened significantly in September.

Computer and electronic product manufacturers reported a 6.5% drop in unfilled orders in September. A large part of the decrease was due to a major manufacturer moving much of its production to an out-of-country plant at the end of August.

New orders down for the second consecutive month

New orders dropped 2.5% in September after plummeting 5.4% in August.

Computer and electronic product manufacturers had the most sizeable drop in new orders for the month, with a $464 million or 26.6% drop in new orders. This was largely due to a sizeable drop in unfilled orders compared to August.

New orders dropped 30.9% or $405 million in September for the aerospace product and parts industry. New orders in the aerospace industry tend to be highly volatile due to the size and frequency of major orders. In August, new orders also dropped sharply for aerospace manufacturers.

Inventory levels down for most manufacturers

Manufacturers' total inventories decreased 1.0% in September after a slight 0.3% decrease in August. September inventories fell $673 million to $66.1 billion. Despite this drop, inventory levels have been trending fairly flat over the past six months after decreasing slightly at the end of 2006 and during the first few months of 2007. The decrease in September was largely due to a 1.9% decrease in raw material inventories.

Inventory levels were down for most industries, with 16 of 21 industries reporting a drop. Aerospace products and parts manufacturers reported the largest decrease in inventories, down 5.4% to $4.7 billion. This erased the inventory build-up reported during the previous two months.

Inventories in the wood product industry continued to decrease, as work stoppages meant that many manufacturers had to rely on existing finished product inventories rather than production to generate sales. Inventories decreased 1.7% for a third monthly decline.

Inventories were also reduced by primary metal manufacturers, down 1.3% in September. Falling primary metal prices continued to play a significant role in the reported value of inventories. Both prices and inventories for primary metal manufacturers have decreased for five consecutive months.

Inventory-to-sales ratio holds steady

The inventory-to-sales ratio remained at 1.31, unchanged since August. A 1.0% drop in inventories was counter-balanced by a similar-sized drop in manufacturing sales. The inventory-to-sales ratio started to decline in October 2006, moving from 1.36 to a 12-year low of 1.25 in March 2007. Since March, manufacturing sales have weakened while inventory levels have remained fairly stable, resulting in a subsequent increase to the current ratio.

The finished product inventory-to-sales edged up a point in September to 0.45.

These ratios are a measure of the time, in months, that would be required to exhaust inventories if sales were to remain at their current level.

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

Definitions, data sources and methods: survey number 2101.

Data from the October Monthly Survey of Manufacturing will be released on December 13.

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 Elton Cryderman (613-951-4317, elton.cryderman@statcan.ca), Manufacturing, Construction and Energy Division.

Sales, inventories and orders in all manufacturing industries
	Sales		Inventories		Unfilled orders		New orders		Inventory-to-sales ratio
	Seasonally adjusted
	$ millions	% change	$ millions	% change	$ millions	% change	$ millions	% change
September 2006	49,789	-3.2	67,407	-0.1	41,439	0.4	49,949	-1.6	1.35
October 2006	49,465	-0.7	67,489	0.1	41,590	0.4	49,616	-0.7	1.36
November 2006	50,611	2.3	67,466	0.0	42,356	1.8	51,378	3.6	1.33
December 2006	51,969	2.7	66,714	-1.1	43,586	2.9	53,199	3.5	1.28
January 2007	51,142	-1.6	66,672	-0.1	48,660	11.6	56,215	5.7	1.30
February 2007	51,290	0.3	66,172	-0.7	50,987	4.8	53,617	-4.6	1.29
March 2007	53,059	3.5	66,154	0.0	51,287	0.6	53,359	-0.5	1.25
April 2007	52,703	-0.7	66,781	0.9	51,848	1.1	53,264	-0.2	1.27
May 2007	52,087	-1.2	66,533	-0.4	52,628	1.5	52,868	-0.7	1.28
June 2007	51,326	-1.5	66,570	0.1	53,135	1.0	51,869	-1.9	1.30
July 2007	51,994	1.3	66,990	0.6	55,011	3.5	53,870	3.9	1.29
August 2007	50,835	-2.2	66,796	-0.3	55,140	0.2	50,965	-5.4	1.31
September 2007	50,403	-0.9	66,122	-1.0	54,410	-1.3	49,673	-2.5	1.31

Manufacturing industries except motor vehicle, parts and accessories
	Sales		Inventories		Unfilled orders		New orders
	Seasonally adjusted
	$ millions	% change	$ millions	% change	$ millions	% change	$ millions	% change
September 2006	42,509	-2.8	64,105	-0.2	39,568	1.2	42,985	-0.8
October 2006	42,511	0.0	64,202	0.2	40,124	1.4	43,067	0.2
November 2006	42,833	0.8	64,221	0.0	41,114	2.5	43,822	1.8
December 2006	43,389	1.3	63,613	-0.9	42,465	3.3	44,740	2.1
January 2007	43,462	0.2	63,565	-0.1	47,528	11.9	48,526	8.5
February 2007	43,471	0.0	63,160	-0.6	49,933	5.1	45,876	-5.5
March 2007	44,529	2.4	63,169	0.0	50,335	0.8	44,931	-2.1
April 2007	45,033	1.1	63,785	1.0	50,835	1.0	45,533	1.3
May 2007	44,658	-0.8	63,574	-0.3	51,579	1.5	45,402	-0.3
June 2007	44,421	-0.5	63,567	0.0	52,093	1.0	44,972	-0.9
July 2007	43,989	-1.0	63,969	0.6	53,977	3.6	45,872	2.0
August 2007	43,913	-0.2	63,755	-0.3	54,204	0.4	44,140	-3.8
September 2007	42,718	-2.7	63,181	-0.9	53,550	-1.2	42,064	-4.7

---

Send this article to another person
E-mail to:
Your name:
Your e-mail: