MRO Magazine

Shipments of machinery fell 5.4% in June, says manufacturing survey

Ottawa, ON -- Manufacturing shipments decreased 0.5% to $41.9 billion in June 2003, culminating a lacklustre second...


August 18, 2003
By MRO Magazine

Ottawa, ON — Manufacturing shipments decreased 0.5% to $41.9 billion in June 2003, culminating a lacklustre second quarter, according to Statistics Canada. Manufacturers sliced 4.4% off shipments in the second quarter, wiping out the first quarter’s gains.

Other manufacturing indicators reported mixed signals. Unfilled orders continued to slide in June (-1.3%), the tenth consecutive decline. On the positive front, inventory levels decreased for the second month in a row and new orders also picked up in June, following a two-month decline.

Decreases in shipments were extensive in June, including 14 of 21 industries, accounting for 78% of total shipments. Meanwhile, the trend for shipments has remained negative for the eighth consecutive month.

Ontario bore the brunt of the drop, as six provinces reported lower shipments in June. Shipments in Ontario fell by $410 million (-1.8%) to $22.3 billion, a four-month low in 2003. Motor vehicles, primary metals and machinery manufacturing contributed to the decline.


Shipments in British Columbia contracted by $41.2 million (-1.5%) to $2.7 billion. The slide was concentrated in the paper and chemical industries, and marked the sixth consecutive drop in manufacturing activity.

Quebec made up lost ground in June, partly offsetting Canada’s overall decline in shipments during the month. Shipments rose by $164.6 million (+1.7) to $9.7 billion, following a string of three monthly decreases. A boost in quarter-end production of computer and electronic products contributed to the rise.

Alberta was badly hit by the closure of the international export market for beef products. Shipments went down by 143 million (-4.0%).

Although the manufacturing sector started the year on a relatively positive note, the second quarter was far from stellar. Fewer new orders filled the books in the second quarter and the level of unfilled orders continued to weaken. Manufacturers cut shipments by a sizable 4.4% to $126.6 billion in the second quarter, after posting a 1.5% rise in the first.

A significantly stronger Canadian dollar, coupled with the ongoing adverse affects of the single case of bovine spongiform encephalopathy (BSE), or mad cow disease, detected in Alberta in May, contributed to the downturn in manufacturing activity this quarter. The U.S. economy, however, is showing some early indications of a modest recovery.

<B>Manufacturers’ concerns linger</B>

In July, manufacturers noted concerns with lower levels of unfilled orders and higher finished-product inventories. According to the recent release of the Business Conditions Survey, manufacturers do not expect to increase production in the coming three months.

According to the latest release of the Labour Force Survey, employment in manufacturing increased slightly in July (+0.1%). Employment has declined 61,000 (-2.6%) over the first seven months of 2003, primarily the result of continued weakness in Ontario. In the U.S., factory employment has fallen 2.7% over the same period.

While Canadian manufacturers faced a dismal second quarter, their U.S. counterparts began to stir. After an extended period of weakness, dating back to the 2001 recession, U.S. shipments rose a healthy 1.1% in June, following a 0.3% increase in May. Durable and non-durable goods manufacturers both contributed to the rise.

Manufacturers in the U.S. also reported optimistic results for inventories and orders. Inventories fell back 0.2%, the fourth consecutive decline. Meanwhile, unfilled orders were up 0.3%.

<B>Autos and machinery drive down Canadian shipments</B>

In June, shipments of motor vehicles decreased 3.4% to $5.3 billion, the third decline in 2003. Shipments are the lowest since last December ($4.7 billion). The start of summer’s annual shutdowns in late June at some plants, and manufacturers’ ongoing efforts to reduce retail inventory levels, contributed to the lower shipments. Quarterly shipments edged back 1.4%, following a robust first quarter (+5.3%).

The machinery and paper industries also reported sharp declines in June. Shipments of machinery fell 5.4% to $1.8 billion, following May’s strong gain (+3.0%). The completion of several contracts contributed to May’s rise. Paper manufacturing declined for the third straight month to $2.6 billion (-2.8%).

<B>Manufacturers reduce inventory levels in June</B>

For the second straight month, manufacturers reported lower inventory levels. In June, inventories fell back 0.9% to $62.9 billion, following a 0.7% drop in May. The inventory trend remained unchanged for a third month.

Since mid-2002, inventories had been on a steady rise as manufacturers faced weak global demand. Total inventories, which had bottomed out at $61.6 billion one year ago, peaked again by April 2003 at $63.9 billion, the highest level since mid-2001. Production slowdowns during the second quarter of 2003 contributed to a $1.0 billion decline in inventories over the last two months.

Manufacturers of primary metals (-2.8%) and computers and electronic products (-2.8%) were the main contributors to the lower inventories in June.

All three stages of fabrication were responsible for the decline in June’s inventories. Raw materials decreased 0.8% to $27.2 billion, the third consecutive drop. Meanwhile, goods-in-process inventories fell 1.1%, the fourth decrease since the start of the year.

Finished-product inventories, which increased almost 3.0% from January to May, fell back 0.7% to $19.9 billion in June, the first decline in five months. The trend, which remained positive since July 2002, continued to slow in recent months.

Following a significant jump in April, the inventory-to-shipment ratio remained near record highs for the third month in a row. In June, the ratio edged back slightly to 1.50 from May’s 1.51, which was the highest level since December 2001 (1.55). Lower shipments and inventories contributed to the relatively stable ratio.

The inventory-to-shipment ratio hovered around 1.43 from January to March. A higher ratio indicates some difficulty by manufacturers to clear inventories due to weakening demand.

The finished-product inventory-to-shipment ratio dropped slightly to 0.47. The ratio has been on an upward trend since the autumn of 2002. 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.

Fewer unfilled orders continued to impede the manufacturing sector. In June, unfilled orders declined a further 1.3% to $39.6 billion, the lowest level in almost six years, and the tenth consecutive decrease. This remains the longest string of declines since the 1990-1991 recession.

More than one-third (34%) of manufacturers reported in July’s Business Conditions Survey that their level of unfilled orders was lower than normal. Only 6% said it was higher than normal.

Widespread weaknesses in unfilled orders were reported in June, and were led by the beleaguered aerospace products and parts industry. Unfilled orders dropped 2.7% to $12.3 billion, the twenty-first consecutive decrease by aerospace manufacturers. Manufacturers have received fewer orders for new aircraft and parts, as many global airlines continue to struggle financially during the current downturn of the aviation sector.

The computer and electronic products industry reported an 8.0% decline in unfilled orders. Orders were $3.6 billion in June, the lowest level in 16 months. Machinery manufacturers also reported a 3.7% decline in unfilled orders to $6.0 billion. This follows an 11.0% drop in May.

New orders rose 2.0% to $41.4 billion in June, following decreases in April (-5.0%) and May (-2.7%). Increases in the transportation equipment and machinery industries offset a sharp decline in new orders for computers.