MRO Magazine

Canadian manufacturers continued to face factors beyond their control with November orders

Ottawa, ON -- In November 2004, both the backlog of manufacturers' unfilled orders and new orders received weakened...


January 20, 2005
By MRO Magazine

Ottawa, ON — In November 2004, both the backlog of manufacturers’ unfilled orders and new orders received weakened for the fourth consecutive month, according to Statistics Canada’s latest Monthly Survey of Manufacturing. Despite the weakness, manufacturers managed to chalk up a modest 0.2% increase in shipments to $50.0 billion.

Manufacturers continued to face factors beyond their control; among them, rising costs and the soaring Canadian dollar have taken a bite out of manufacturing activity in recent months.

The Canadian dollar made strong gains in November, touching the US 85 cent mark by the end of the month, its highest level since 1992. The sustained strength of the dollar continued to render manufactured goods, priced in Canadian dollars, more expensive abroad, a challenge for manufacturers trying to secure and retain foreign customers. The latest Canadian international merchandise trade statistics reported a 2.9% decline in total exports for November, the fourth decrease in the last five months.

In addition to the impediments created by a high-valued dollar, input costs have also soared in 2004. For some manufacturers, the higher costs may be cutting into their profit margins.



The impact of these obstacles has been quite apparent. Canada’s manufacturers saw their new orders decrease 0.5% to $49.6 billion in November, a six-month low. The transportation equipment (-5.5%) and computer (-3.9%) industries were primarily responsible for the fourth decline in a row.

Unfilled orders, which may contribute to future shipments, have also dropped four straight months. In November, the backlog of orders fell 1.2% to $36.7 billion, further weakening the trend. In November, orders stood 3.3% below the peak of 2004, set in July ($37.9 billion). Manufacturers of computer equipment (-4.4%) and aerospace products and parts (-0.9%) contributed to the decline.


As a further indication of the rough road in recent months, employment in manufacturing was essentially unchanged in December, capping off a lacklustre year. According to the most recent Labour Force Survey, the second half of 2004 was particularly difficult as manufacturers eliminated 51,000 factory jobs since July.


Despite the deteriorating state of orders, manufacturers posted a modest increase in the value of goods shipped in November. Shipments edged up 0.2% to $50.0 billion following declines in September (-0.5%) and October (-1.0%). November’s increase was widespread, with 15 of 21 industries, accounting for 69% of total shipments, contributing to the rise.

Measured in constant dollars, shipments rose 0.7% to $47.0 billion, the first increase since August.


Six provinces reported higher shipments in November, although they were largely offset by decreases in the two largest manufacturing provinces, Ontario and Quebec. New Brunswick led all provinces, posting a $146 million (+12.6%) jump in shipments to a record $1.3 billion. The province’s non-durable goods sector dominated in November, with a 16% surge in shipments to just over $1.0 billion.

Both Alberta and British Columbia also reported strong shipments in November. Sizable gains in Alberta’s machinery and petroleum industries boosted shipments by $112 million (+2.5%) to a record $4.6 billion. In the first 11 months of 2004, manufacturing activity was up a robust 14.7% in Alberta. Moving west, shipments in British Columbia increased $44 million (+1.2%) to $3.6 billion. The food and primary metals industries were the main contributors to the gain.

Offsetting much of the gains in November were decreases in Canada’s manufacturing heartland. A slowdown in the motor vehicle and parts industries contributed to the third successive decrease for Ontario. Shipments fell by $155 million (-0.6%) to $25.9 billion, the lowest since May. Manufacturing in Quebec also retreated by $126 million (-1.1%) to $11.3 billion. Production slowed in the aerospace and petroleum products industries, pulling down output for the third time in four months.

Computer shipments jump
The computer and electronic products industry reported a robust 5.6% increase in shipments to $1.6 billion, making up some of the ground lost in October (-7.3%). The beleaguered industry has been showing small gains in recent months, partly due to improvements in the communications equipment industry. Overall, shipments of computers and electronic products are on track to report the first annual increase since 2000. Shipments were up 7.3% from January to November.

High industrial prices, which were up almost 37% in November compared to last year, continued to set records in the petroleum and coal products industry. Shipments rose another 1.5% to $4.3 billion, the highest level ever for the industry. In addition, exports of crude petroleum hit a record high of $2.5 billion in November.

Other industries reporting increases include chemical products (+1.5%) and machinery (+2.2%) manufacturing.

Some manufacturing industries pulled back in November, partly offsetting the modest rise in shipments. Following a large number of orders shipped in October, the railroad rolling stock industry reported a 34.4% drop in production in November to $179 million. Manufacturers of motor vehicle parts have been feeling the pinch of a slowdown in the motor vehicle industry. Parts manufacturing fell back by 2.9% to $2.7 billion, the third consecutive decrease.


For the third month in a row, manufacturers’ inventories were essentially unchanged at $62.2 billion. Inventories had been on a steady rise since the start of the year. November’s level is 6.7% higher than at the close of 2003.

Raw material inventories rose 0.3% to $27.1 billion, following October’s 0.3% decrease. The trend for raw materials has been rising since the start of the year, although signs indicate the trend may be slowing.

Counterbalancing the build-up in raw materials, slight decreases were reported in both goods-in-process (-0.1%) and finished products (-0.2%) inventories. November marked the third drop in a row for goods-in-process inventories, which stood at $13.8 billion at month’s end. Meanwhile, finished products, which have been trending upwards in recent months, edged back to $21.3 billion, the first decline since July.

Higher inventories for primary metals (+3.0%) and machinery (+2.5%) were offset by declines in the motor vehicle (-8.7%) and the wood products (-1.5%) industries.

November’s modest gain in shipments resulted in a slight downward shift of the inventory-to-shipment ratio. The ratio edged down to 1.24 from 1.25 in October. The inventory-to-shipment ratio is a key measure of the time, in months, that would be required in order to exhaust inventories if shipments were to remain at their current level.