MRO Magazine

Manufacturers curtailed production in September

Ottawa, ON -- Following a red-hot August (+3.1%), manufacturers curtailed production in September 2005 as shipments...


November 21, 2005
By MRO Magazine

Ottawa, ON — Following a red-hot August (+3.1%), manufacturers curtailed production in September 2005 as shipments edged down 0.5% to $51.6 billion, according to Statistics Canada’s Monthly Survey of Manufacturing. A hefty decline in motor vehicle manufacturing was partly offset by increases in the aerospace and chemicals products industries.

Excluding the motor vehicle and parts industries, total manufacturing shipments increased at a reasonably healthy pace of 0.6%.

Although manufacturing activity tapered off in September, the decrease was not widespread; only 10 of 21 industries accounting for just over half of the total value of shipments (53%), posted decreases. At 1997 prices, shipments fell 0.6% to $47.7 billion, which followed August’s volume based surge in production (+3.0%).

The ever-volatile transportation equipment sector was the main contributor to the plunge in shipments in September. Extensive declines in motor vehicle manufacturing resulted in an 8.2% drop in shipments to $5.7 billion. This followed a strong August (+12.3%) when some manufacturers returned from summer shutdowns and began to boost production of the 2006 models.


Seasonal shutdowns and extended production slowdowns at some plants have contributed to the recent volatility of the motor vehicle industry. In Canada and the United States, incentive programs by various car makers, which saved consumers thousands of dollars, pulled forward sales into the summer which likely would have occurred in the fall. Vehicle sales estimates for September and October were off sharply in both countries.

In addition, the soaring cost of gasoline coupled with the recent rise in interest rates, could put a further damper on the short-term prospects of the motor vehicle industry.


Also posting notable declines in September were the railroad rolling stock and computer industries. Production of railroad rolling stock fell 39.5% to $223 million, due to temporary operational problems at some plants. The industry has received a wave of new orders for commuter rail cars in recent months, which is expected to translate into future production.

Following a strong start to the year, computer manufacturing fell back another 5.7% to $1.8 billion in September, the third decline in the last five months. Despite the recent setbacks, 2005 shipments remained above levels of the last couple of years.


Production of aerospace products and parts surged 21.7% to $1.1 billion, making up for August’s 30.1% drop, and partly counterbalancing the overall decline in shipments in September. Pent-up, global demand for new aircraft contributed to the recent uptake in production of aerospace products in 2005.

An earlier-than-normal boost in demand for chemical fertilizers contributed to September’s 3.3% gain in shipments of chemical products to $4.1 billion.


Sluggish production of transportation equipment pulled down shipments in Ontario by $590 million (-2.2%) to $26.4 billion, the second decrease in three months. Manufacturing activity also slowed in Newfoundland and Labrador for the third consecutive month as shipments fell by $21 million (-8.7%) to $219 million in September.

Wide-ranging gains contributed to Quebec’s rebound in September as shipments rose by $188 million (+1.6%) to $12.1 billion. Aerospace production and record high petroleum shipments contributed to the rise.

Alberta’s two largest manufacturing industries, petroleum and chemical products, led all industries in September. Manufacturers posted a $77 million (+1.6%) increase in shipments to $5.0 billion, following a 3.1% jump last month.


Finished product inventories dropped 2.1% to $21.6 billion in September, following a 0.2% decrease in August. Finished products had been on a steady rise since early 2004, although the trend has slowed in recent months. September’s decrease was concentrated in the aerospace and primary metals industries.

The aerospace industry also contributed to a 0.7% rise in goods-in-process inventories, partly offsetting the drop in finished products. Meanwhile, inventories of raw materials remained relatively constant at $28.6 billion in September.

Overall, total inventories fell 0.5% to $65.2 billion, the second consecutive monthly decline. Manufacturers’ inventories have decreased only 3 times in the last 21 months.


In September, the inventory-to-shipment remained at 1.27 for the second straight month, below the recent high of 1.31 recorded last July. 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.

So far in 2005, the ratio’s trend has been relatively stable following a gradual rise late last year. In 2004, the ratio bottomed-out at 1.20 as robust shipments boosted the manufacturing sector overall.

The impact of the strong Canadian dollar on manufacturers’ export trade, coupled with rising input costs and aggressive foreign competition have been among the many challenges facing Canada’s manufacturing sector.


Manufacturers’ backlog of unfilled orders edged 0.1% higher in September to $42.0 billion, the seventh successive increase.

The steady rise in unfilled orders was in keeping with manufacturers’ improved opinion concerning their level of orders going into the fourth quarter of 2005, according to the Business Conditions Survey for October. Orders, which have risen 14% since the close of 2004, now stand at the highest level since December 2002.

In September, widespread increases in unfilled orders were reported by the machinery (+3.2%) and railroad rolling stock (+3.1%) industries, which offset a 2.2% decline in the aerospace products and parts industry. Despite September’s drop in the backlog of aerospace orders, demand in the industry has been strong in 2005 as unfilled orders stand 18% higher compared to September 2004.


New orders fell back 1.7% to $51.6 billion in September, following August’s 3.0% jump. The transportation equipment sector (-8.9%) was responsible for the decrease. Excluding this sector, which saw decreases in the motor vehicles and aerospace industry, new orders were up 0.2% in September.

Data from the October Monthly Survey of Manufacturing will be released on Dec. 14, 2005.