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Manufacturing up in October but only in specific sectors

Ottawa, ON -- The transportation equipment sector was again the key mover in October 2005, as a sizable jump in mot...


Ottawa, ON — The transportation equipment sector was again the key mover in October 2005, as a sizable jump in motor vehicle manufacturing boosted total shipments by 0.9% to $52 billion. Meanwhile, new contracts in the aerospace industry led to a 1.4% surge in unfilled orders.

Although total manufacturing was up in October, the increase was quite concentrated as only 10 of the 21 manufacturing industries, accounting for 57% of the total, posted higher shipments, according to Statistics Canada in its latest Monthly Survey of Manufacturing.

At 1997 prices, shipments rose a modest 0.3% to $47.8 billion, partly making up for September’s 0.8% decline.

Following a weak September (-7.3%), manufacturers of motor vehicles bounced back in October with shipments rising 7.6% to $6.2 billion. October’s gains were attributable to a boost in production of 2006 models by some plants, coupled with the fact that Canada is currently home to the assembly of several popular makes of cars and light trucks in North America.

Excluding the volatile motor vehicle and parts industries, total manufacturing shipments remained unchanged (+0.0%) from September’s level.

The motor vehicle industry is in the midst of restructuring itself in light of soaring costs, shifting product demand and offshore competition. Recent reports of plant closures and significant job cuts, coupled with announcements of major investments in infrastructure, weigh heavily on the future prospects of motor vehicle manufacturing.

MANUFACTURERS PRODUCE MORE CHEMICALS, RAIL CARS AND MACHINES

In the shadow of October’s big gain in motor vehicle shipments, manufacturers of chemicals, railroad rolling stock and machinery also contributed to the rise.

Strong demand, coupled with a tight supply of product in the United States, has bolstered prices of chemical products in recent months. As a result, October’s shipments of chemical products rose another 2.2% to $4.2 billion, the third successive increase.

Production of railroad rolling stock recovered from a sharp drop in September that was due to temporary operational problems at some plants. The industry, which has received a wave of new orders for commuter rail cars in recent months, boosted production by 40.4% to $310 million in October. Machinery manufacturers also posted a substantial gain in shipments of 2.8% to $2.7 billion.

Offsetting some of the increases, a sharp 3.2% drop in the industrial price of petroleum in October pulled down the value of shipments of petroleum and coal products by 2.4% from September’s record level of $5.2 billion. Recent labour disruptions partly contributed to a 3.0% drop in the primary metals industry.

ROBUST MANUFACTURING OF MOTOR VEHICLES GENERATES BOOST IN ONTARIO

Six provinces and the Yukon reported higher shipments in October. The bounce back in motor vehicle manufacturing lifted shipments in Ontario by $424 million (+1.6%) to $26.7 billion, leading all provinces. However, the picture changes in Ontario when the motor vehicle and parts industries are excluded, with shipments falling 0.2% in October.

Manufacturing in Quebec rose by $62 million (+0.5%) to $12.2 billion, the fourth increase in the last five months. British Columbia posted a $53 million (+1.5%) gain in shipments to $3.6 billion, making up for a weak September (-0.5%).

On the labour front, the number of factory jobs edged higher in November for the first time since June. According to the latest release of the Labour Force Survey, manufacturers added 6,800 jobs (+0.3%) in November. Despite the rise, manufacturing employment remained down by 100,000 compared to the same period one year ago. In October, manufacturing employment declined by 7,700.

AEROSPACE ORDERS CONTINUE TO SOAR

Unfilled orders rose 1.4% to $42.5 billion in October, the eighth increase so far in 2005. Orders now stand at the highest level since December 2002 ($43.1 billion).

New contracts received by aerospace manufacturers improved the industry’s backlog of orders by 4.2% to $13.5 billion, and was largely responsible for the October increase. Excluding the aerospace products and parts industry, unfilled orders edged up 0.2% for the month.

The plastics and rubber products (+14.3%) and fabricated metal products (+0.9%) also reported higher unfilled orders in October. They were partly offset by a 3.8% decline in orders for railroad rolling stock, although this industry has received a stream of orders in recent months.

BIG SURGE IN NEW ORDERS

A significant gain in the transportation equipment sector was enough to boost new orders by a healthy 2.3% to $52.6 billion in October, and counterbalanced September’s 1.9% decline. New orders now stand at the highest level since January of this year.

Wide ranging increases in the aerospace and motor vehicle industries were responsible for October’s surge in new orders. Excluding the transportation equipment sector, new orders declined 0.3%.

INVENTORIES ON THE RISE

Following successive declines in August and September, manufacturers’ inventories advanced 0.5% to $65.8 billion in October. Despite October’s increase, the upward trend in inventory accumulation has been gradually slowing since mid-2004.

Manufacturers reported the first increase in finished product inventories in three months. Finished products were $21.9 billion, up 0.8% from September. Goods-in-process inventories were also higher by the close of the month, rising 0.9%. Meanwhile, inventories of raw materials remained relatively constant at $28.7 billion.

Sizeable gains in the aerospace (+3.3%), plastics and rubber products (+3.0%) and wood products (+1.4%) industries contributed to the rise in inventories.

October’s higher shipments, coupled with a modest increase in inventories, resulted in a slight drop in the inventory-to-shipment ratio to 1.26 from 1.27 in September.

In mid-2004, the inventory-to-shipment ratio had fallen to a low of 1.20 as robust shipments contributed to a strong manufacturing sector at the time. Following a gradual climb earlier this year, the ratio’s trend has since stabilized in recent months.

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.