Ottawa, ON — In March 2005, for the second consecutive month, the transportation equipment sector put the brakes on manufacturing shipments, which dropped 2.4% to $49.7 billion, reports Statistics Canada. This followed a 0.7% decline in February and largely wiped out the 2.6% gain manufacturers registered in January.
March’s weakness in shipments was wide ranging; the majority of manufacturing industries (16 of 21) accounting for 80% of total shipments, reported declines. Excluding the transportation equipment sector, total manufacturing shipments were down 0.2%, but this drop was offset by high industrial prices for petroleum and coal products.
Despite the slump in shipments, the backlog of unfilled orders rose by 2.1% to $39.0 billion in March, a two-year high.
The price of crude oil soared to new heights in March. Market angst regarding possible oil supply shortages in the United States sent crude prices to record levels by mid-month. The price of petroleum and coal products jumped 7.1% in March, and has risen 15% since the start of the year. As a result, price-inflated shipments of petroleum hit $4.3 billion, a jump of 7.3%.
March’s gain in petroleum shipments was responsible for the 0.9% advance in nondurable goods manufacturing which stood at $21.8 billion.
Ontario (-$1.1 billion) and Quebec (-$284 million) led the six provinces and the Northwest Territories which posted decreases in March. They were partly offset by higher shipments in New Brunswick (+$109 million) and Alberta (+$62 million), due to the strength in resource-based industries.
Despite soaring petroleum prices and a strong Canadian dollar now lingering above the 80 cent US mark, these less-than-ideal market forces did not completely deter manufacturing in the first three months of 2005. Quarterly shipments were up 5.7% compared to January-to-March 2004.
According to the latest Business Conditions Survey, manufacturers anticipate they will maintain the same level of production in the coming three months, notwithstanding several production impediments. These impediments include the strengthened Canadian dollar, high finished product inventories, shortages of raw materials and labour, and cheap imports.
March’s substantial drop in shipments coupled with a rise in inventories contributed to the sizeable boost in the inventory-to-shipment ratio. The ratio, which has been on an upward trend since last summer, rose to 1.30 in March from February’s 1.26. This was its highest level since November 2003.
The inventory-to-shipment ratio is a key measure of the time, in months, that would be required to exhaust inventories if shipments were to remain at their current level.
Manufacturers’ backlog of unfilled orders gained some ground in March, rising 2.1% to $39.0 billion. This marked the second increase in orders in 2005 and further strengthened the trend of unfilled orders, which has been positive for the last four months.