MRO Magazine

Manufacturing confidence for next quarter muddy

Ottawa, ON -- Uncertainty seems to best describe manufacturers' confidence regarding the outlook for the second qua...


Industry

May 10, 2004
By MRO Magazine
MRO Magazine

Ottawa, ON — Uncertainty seems to best describe manufacturers’ confidence regarding the outlook for the second quarter of 2004, according to the latest Business Conditions Survey of Manufacturing Industries completed by Statistics Canada.

Although remaining positive, production prospects for the coming quarter were slightly lower and satisfaction with the current level of unfilled orders was less negative. However, manufacturers indicated more concern with lower levels of new orders and rising levels of finished product inventories.

Producers in the primary metals, fabricated metal products and machinery industries expressed major concerns about steel shortages, higher prices and increasing exports of scrap metal to China.

The voluntary survey conducted in the first two weeks of April, to which almost 4,000 manufacturers responded, requests opinions on production impediments, finished product inventory levels, new and unfilled order levels, and production and employment prospects in the coming three months.

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In April, 23% of manufacturers stated they would increase production in the second quarter of 2004, while 15% expected to decrease production, leaving the balance of opinion at +8. This was a decrease from the +13 posted in January. Led by producers in the chemical and machinery industries, 16 of the 21 manufacturing industries continued to contribute to the positive balance.

The balance of opinion is determined by subtracting the proportion of manufacturers that stated production would decrease in the coming three months from the proportion who stated production would increase.

Following positive balances in the previous two quarters, the April balance of opinion on the current level of orders received dropped 15 points to -2. The number of manufacturers who stated that orders received were decreasing went to 22% in April from 11% in January. Producers in the computer and electronic products and transportation equipment industries were the major contributors to the negative balance.

In April, 73% of manufacturers reported that the current level of finished product inventories was about right, an 11 percentage point drop from January. Some 17% stated that inventories were too high and 10% said inventories were too low, leaving the balance of opinion at -7, a five-point decrease from January. Manufacturers in the transportation equipment and wood product industries were the major contributors to the lower balance. According to February’s Monthly Survey of Manufacturing, finished-product inventories stood at $20.1 billion, their lowest level since September 2002 and the 10th decrease in a row.

With 13% of manufacturers stating a higher-than-normal backlog and 13% expressing a lower-than-normal backlog, the balance of opinion concerning the current level of unfilled orders stood at zero in April, 10-points higher than January. Producers in the transportation equipment, machinery and fabricated metal product industries were the major contributors to the improved balance.

According to the Monthly Survey of Manufacturing, manufacturers posted a 0.2% increase in unfilled orders in February to $35.6 billion, the first increase since May 2001.

The balance of opinion for employment prospects for the next three months was up one point to -1 in April. While 85% of manufacturers stated that they would keep or add to their work force, 15% indicated that they expected to decrease employment in the coming quarter. According to the March 2004 Labour Force Survey, employment in manufacturing was little changed for the fourth consecutive month, leaving losses since November 2002 (when the downward trend started) at 76,000 (-3.2%).

The number of manufacturers reporting no production impediments slipped three points to 81% in April. The number of producers reporting raw material shortages jumped from 3% in January to 7% in April. This increase was mostly felt in primary metals, fabricated metal products and machinery industries, where manufacturers expressed concerns about steel shortages, higher prices and increasing exports of scrap metal to China, which is experiencing a construction boom. The proportion reporting a shortage of skilled labour remained at 5%.