MRO Magazine

Lower manufacturing production and employment predicted for coming months

Ottawa, ON -- Manufacturers have begun to retrench following the rapid run-up in the value of the Canadian dollar a...


Industry

January 31, 2005
By MRO Magazine

Ottawa, ON — Manufacturers have begun to retrench following the rapid run-up in the value of the Canadian dollar and substantial increases in the price of crude oil and other raw material inputs in 2004, dampening the outlook for the first quarter of 2005, reports Statistics Canada in its January 2005 Business Conditions Survey of manufacturing industries.

Manufacturers are now anticipating lower production and employment levels in the coming months, resulting from dissatisfaction with the current levels of orders and inventories, the report suggests.

The voluntary survey conducted in the first two weeks of January requests opinions on production impediments, finished product inventory levels, new and unfilled order levels, production and employment prospects in the coming three months.

MANUFACTURERS LESS POSITIVE ABOUT PRODUCTION PROSPECTS

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In January, the number of manufacturers stating they would increase production over the next three months stood at 13%, down 8 points from the October survey. As well, 13% of manufacturers indicated they would decrease production in the first quarter. As a result, the balance of opinion stood at 0, an 11 point drop from the positive October balance. The major contributors to the drop in the balance of opinion were manufacturers in the transportation equipment, primary metal, machinery and computer and electronic product industries.

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 be increasing.

SATISFACTION WITH LEVEL OF ORDERS RECEIVED SLIDES

After remaining positive throughout 2004, the January balance of opinion on the current level of orders received dropped 13 points to 0. The number of manufacturers who stated that orders received were declining was 14% in January, a jump of 9 points from October.

The decrease in satisfaction with the level of orders received was not concentrated in any specific industry. In January, 18 of the 21 manufacturing industries indicated lower satisfaction with the current level of orders.

MANUFACTURERS’ SATISFACTION WITH UNFILLED ORDERS DROPS

With 24% of manufacturers expressing a lower-than-normal backlog and 12% stating a higher-than-normal backlog, the balance of opinion concerning the current level of unfilled orders stood at -12. This was down 11 points from what was reported in the October 2004 survey and close to the level posted in the October 2003 survey (-13).

Producers in 16 of the 21 manufacturing industries indicated lower satisfaction with the current level of unfilled orders. According to November’s Monthly Survey of Manufacturing, unfilled orders declined 1.2% to $36.6 billion, a fourth consecutive decline and down from a high of $37.9 billion in July 2004.

Manufacturers’ slightly more concerned with finished product inventories
In January, 75% of manufacturers reported that the current level of finished product inventories was about right, down from 78% in October. Some 19% stated that inventories were too high, while 6% said inventories were too low. This left the balance of opinion at -13, a 1 point drop from the October survey. According to November’s Monthly Survey of Manufacturing, finished products were at a level of almost $21.3 billion.

MANUFACTURERS’ EMPLOYMENT PROSPECTS ARE NO LONGER POSITIVE

The balance of opinion for employment prospects for the first quarter fell 8 points to -1 in January. 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 first quarter. According to the December Labour Force Survey, the manufacturing sector turned in a lackluster performance with employment especially hard hit in the second half of 2004, leaving it down 1.2% for the year. Also, employment in the sector is now 4.3% below the most recent peak towards the end of 2002.

FEWER MANUFACTURERS REPORTED PRODUCTION IMPEDIMENTS

The number of manufacturers reporting no production impediments was up 6 points to 86% in October. After reaching a high of 8% in the April and July 2004 surveys, the number of producers reporting raw material shortages decreased from 5% in October to 4% in January.

The decreasing concern over raw material shortages was mostly felt in primary metals industries, while manufacturers in the fabricated metal product and machinery industries continued to express concerns about steel shortages and higher prices. The proportion reporting a shortage of skilled labour was down 2 point to 5% and those reporting a shortage of unskilled labour decreased 2 points to 1%.