Survey of Manufacturing results are bright for March
Ottawa, ON -- A boost in motor vehicle manufacturing, coupled with a price-driven rise in shipments of petroleum an...
Ottawa, ON — A boost in motor vehicle manufacturing, coupled with a price-driven rise in shipments of petroleum and coal products, contributed to a 1.4% increase in manufacturing shipments in March. Shipments rose to $44.7 billion, the highest level since November 2000.
Despite global uncertainty in the wake of the war in Iraq and the tenuous state of the U.S. economy, the Canadian manufacturing sector held its own in recent months. Manufacturers posted a 2.2% increase in shipments in the first quarter, more than enough to compensate for the 0.9% decline in the fourth quarter of 2002. Since the sharp downturn in manufacturing activity during 2001, Canadian manufacturers have reported higher shipments in four of the last five quarters.
Of the 21 manufacturing industries, representing 65% of total shipments, 13 reported increases in March. The non-durable and durable goods sectors were both up. Soaring petroleum shipments contributed to a 1.6% rise among non-durable goods manufacturers, the fourth increase in a row. Motor vehicle manufacturing boosted shipments of durable goods by 1.2% to $25.1 billion.
Ontario led the seven provinces and all territories that reported higher shipments in March. Manufacturers of motor vehicles and petroleum and coal products contributed to a $559 million increase (+2.4%) in shipments. Ontario, Canada’s key manufacturing province, reported shipments of $23.9 billion in March.
Alberta’s manufacturers posted a $115.7 million (+3.0%) increase in shipments. Machinery and fabricated metal products industries contributed to the fifth consecutive monthly gain in shipments for the province. New Brunswick rounded out the top three provinces. Shipments were up $94.5 million (+8.5%) to $1.2 billion in March.
Manufacturers apprehensive about second quarter
Despite the strength of the Canadian manufacturing sector in the first quarter, there are some underlying concerns. Record high petroleum and coal product prices, which contributed to the advance in manufacturing shipments during the first quarter, have since fallen significantly. As well, fluctuations in the motor vehicle industry have been a key influence. Waning consumer demand for motor vehicles in the United States and Canada and rising retail inventories have contributed to the recent volatility of the sector.
Excluding the motor vehicle and parts industries and the petroleum and coal products industry, shipments increased a more modest 0.3% in March.
Global uncertainty and the recent surge in the value of the Canadian dollar have contributed to additional unease among manufacturers. According to April’s quarterly Business Conditions Survey, manufacturers were concerned with lower levels of orders and future production. In April, 31% of manufacturers stated that they anticipated decreasing production during the second quarter, and 26% said their levels of unfilled orders were lower than normal.
In March, unfilled orders fell 0.4% to $42.9 billion. This was the seventh consecutive decline and the longest series of monthly decreases of unfilled orders since 1990-1991.
Factory jobs lost
Employment in manufacturing continued to weaken in April, down 0.3%. This followed a sharp decline in March (-1.6%). According to the latest release of the Labour Force Survey, manufacturers have cut 38,000 (-1.6%) jobs since the start of the year. The largest declines in the first four months of 2003 were in computer and electronic products. On the positive side, offsetting employment gains were reported in motor vehicle and parts manufacturing from January to April.
Automakers boost manufacturing
The motor vehicle industry, subject to considerable variation in recent months, reported a 6.2% jump in shipments in March. Shipments rose to $5.7 billion, the highest level since the summer of 2002. This is a reversal of February’s drop (-2.5%), and was preceded by soaring shipments in January (+15.9%). Some manufacturers noted that they had increased production levels in order to build up stock of new models.
The trend for shipments of motor vehicles returned to the positive side in March for the first time since July 2002.
Prior to the first quarter of 2003, there had been a general deceleration in motor vehicle manufacturing during the later half of 2002. Higher retail inventories and heightened uncertainty regarding the sustainability of demand in 2003 contributed to the sharp slowdown in manufacturing of motor vehicles in the fourth quarter of 2002. According to the latest release of new motor vehicle sales for March, sales declined 4.4% following large monthly fluctuations in February (+14.0%) and January (-14.6%).
Petroleum and coal record high shipments
Rising prices continued to push petroleum and coal product shipments to record levels. Shipments jumped 5.5% to $3.6 billion in March and are now up more than 25% since November.
Petroleum prices increased 1.8% in March, and have soared 20% during the first three months of 2003. The start of the war in Iraq coupled with a colder-than-normal winter in North America, contributed to international concerns for adequate supplies of petroleum products.
The paper and machinery industries also contributed to higher shipments in March. Paper shipments rose 3.0% to $2.8 billion. Manufacturers of machinery posted a 2.5% rise in shipments to $2.0 billion, the highest level since October. Decreases in shipments of wood products (-4.2%) and primary metals (-2.0%) partly offset some of the increase in total shipments in March.
Inventories continue to accumulate
Following a 0.8% gain in February, manufacturers’ inventories increased an additional 0.4% in March. Inventories stood at $63.7 billion, the highest level in 18 months. The trend for inventories has been positive for ten consecutive months.
Finished-product inventories increased 1.0% to $20.0 billion in March, just short of June 2001’s peak of $20.2 billion. The accumulation of finished-product inventories in recent months may be a sign of weakening demand, partly the result of ongoing economic uncertainty of Canada’s largest trading partner, the United States.
Raw material inventories also increased in March, up 0.5% to $27.8 billion. Manufacturers reduced goods-in-process inventories by 0.4% to $15.9 billion, the third decrease in four months.
The main contributors to March’s increase in inventories were the chemical products and wood products industries. Inventories of chemical products climbed 2.1% to $5.9 billion. In recent months, pharmaceutical and chemical fertilizer manufacturers have been increasing stock to meet product demand. Higher industrial prices for chemical and petroleum products also boosted the value of chemical inventories.
A gradual slowdown in construction of new housing, coupled with falling industrial prices, contributed to a build-up of wood product inventories in 2003. Inventories increased 2.1% to $4.6 billion, the highest level since October 2001.
The inventory-to-shipment ratio settled back to 1.43 in March from 1.44 in February. March’s increase in shipments outpaced the 0.4% rise in inventories, contributing to the lower ratio.
The finished-product inventory-to-shipment ratio remained stable at 0.45 in March, the result of comparable increases in both shipments and finished-product inventories. The ratio is a measure of the time that would be required in order to exhaust finished-product inventories if shipments were to remain at their current level.
Orders on the books
In March, Canadian manufacturers reported the seventh consecutive decline in unfilled orders. Orders decreased 0.4% to $42.9 billion, the lowest level since January 1999. Ongoing weakness in the global aviation sector was partly responsible for the decline. Excluding the aerospace products and parts industry, unfilled orders improved by 0.7% in March.
Manufacturers of aerospace products and parts reported a 2.5% drop
in orders to $13.8 billion, the lowest level in more than four years. The threat of terrorism, the war in Iraq and a significant downturn in business travel have all contributed to the persistent slump in the aerospace products and parts industry.
Unfilled orders increased in the machinery (+6.5%) and the plastics and rubber products industries (+10.0), partly offsetting the overall decrease in March.
In March, new orders rose to their highest level since August 2002. Manufacturers reported $44.5 billion worth of new orders on their books in March, up 1.6% from February. Motor vehicles, computers and plastic and rubber products industries were the top contributors.
The March 2003 issue of the Monthly Survey of Manufacturing (31-001-XIE, $15/$147) will be available soon. For general information or to order data, contact the dissemination officer (1-866-873-8789; 613-951-9497; fax: 613-951-9499; firstname.lastname@example.org). To enquire about the concepts, methods or data quality of the release, contact Russell Kowaluk (613-951-0600; email@example.com), Manufacturing, Construction and Energy Division.