MRO Magazine

Little change in manufacturers’ production prospects predicted in first quarter

Ottawa, ON -- Despite rising satisfaction with current levels of new orders, manufacturers' prospects for productio...


Industry

January 30, 2007
By MRO Magazine

Ottawa, ON — Despite rising satisfaction with current levels of new orders, manufacturers’ prospects for production and employment for the first quarter of 2007 remained negative, according to the latest Business Conditions Survey of Manufacturing Industries conducted by Statistics Canada.

The Business Conditions Survey is a quarterly survey that requests manufacturers’ opinions on production impediments, finished product inventory levels, new and unfilled order levels, production and employment prospects in the coming three months. The voluntary survey was conducted in the first two weeks of January 2007 and attracted over 3,000 responses from manufacturers.

LITTLE CHANGE IN MANUFACTURERS’ PRODUCTION PROSPECTS

In January, 18% of manufacturers stated they would increase production over the next three months, up 2 points from the October 2006 survey. At the same time, manufacturers indicating they would decrease production in the first quarter increased 1 point to 23%. As a result, the balance of opinion stood at -5, a 1 point improvement from the October balance.

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The continuing negative production prospects were attributed to manufacturers in Ontario and Quebec, while most other provinces were positive. While the current reading was only slightly better than what was observed during the last quarter, it was 7 points better than the second quarter reading. A meaningful positive balance has not been seen since October 2004, when the balance stood at +11.

Producers of computer and electronic products, plastics and rubber products and transportation equipment were the major contributors to the negative balance. In all, 11 of the 21 manufacturing industries posted a negative balance for production prospects in the first quarter of 2007. Although not enough to offset declines, positive prospects were reported by manufacturers of primary metal, fabricated metal, petroleum and paper products.

The balance of opinion was determined by subtracting the proportion of manufacturers who expected production would be decreasing in the coming three months from the proportion who expected production would be increasing.

SATISFACTION WITH LEVEL OF NEW ORDERS ON THE RISE

While 25% of manufacturers stated the current level of new orders was increasing, those stating the level of new orders was decreasing remained at 23%. As a result, the January balance of opinion jumped 15 points from the October survey to +2. This was the largest quarter-to-quarter increase in balance since a 35 point jump in the April 2002 survey.

The improvement in the balance was widespread, as 12 of the 21 industries indicated greater satisfaction with current levels of new orders. Producers in the transportation equipment, primary metal and chemical industries were the major contributors to the improved balance of opinion for orders received. According to November’s Monthly Survey of Manufacturing, new orders for all manufacturing industries recovered 3.9% to just over $49.9 billion.

MANUFACTURERS EXPRESS FEWER CONCERNS WITH LEVELS OF UNFILLED ORDERS

Although still negative, the January balance of opinion concerning the current level of unfilled orders increased 8 points to -11 from -19 in the October survey. Some 22% of manufacturers indicated that the current level of unfilled orders was lower than normal, while 11% claimed a higher than normal backlog.

Producers in the transportation equipment and computer and electronic products industries were the major contributors to the improved unfilled orders balance of opinion. The balance of opinion for unfilled orders has remained negative since July 2004. According to November’s Monthly Survey of Manufacturing, unfilled orders jumped 2.3% to just over $42.2 billion, an increase of $948 million over the previous month.

MANUFACTURERS EXPRESSING MORE CONCERN WITH FINISHED PRODUCT INVENTORIES

In January, 77% of manufacturers reported that the current level of finished product inventories was about right, down 4 points from October. Some 20% stated that inventories were too high, while 3% said inventories were too low. This left the balance of opinion at -17, an 8 point drop from the October balance. A year earlier, in the January 2006 survey, the balance of opinion for finished product inventories had also stood at -17.

According to November’s Monthly Survey of Manufacturing, finished product inventory levels stood at over $22.5 billion, up 3.3% from the level of over $21.8 billion posted one year earlier in the November 2005 survey. The finished product inventories to shipments ratio has been on the increase during the last five months.

MANUFACTURERS’ EMPLOYMENT OUTLOOK REMAINS NEGATIVE

The balance of opinion for employment prospects for the next three months changed little, up 1 point to -4 in January. Two-thirds of manufacturers stated that they would keep their current work force, 15% indicated they would increase it and 19% indicated that they expected to decrease employment in the first quarter of 2007.

Regionally, manufacturers expected slightly lower employment levels in Ontario (balance -15) and Quebec (balance -8), which offset positive balances in seven of the remaining provinces where manufacturers continued to express difficulty in finding skilled labour.

According to the December Labour Force Survey, manufacturing employment declined by 2.7% (-59,000) in 2006, bringing total losses since the start of the decline in November 2002 to 9.0% (-216,000). In 2006, the losses were primarily in Ontario and Quebec. In contrast, large gains in manufacturing employment were seen in Alberta, British Columbia and Manitoba over the course of the year (+32,000).

MANUFACTURERS REPORT FEWER PRODUCTION IMPEDIMENTS

The number of manufacturers reporting production impediments decreased 5 points to 23% in the January survey. The value of the Canadian dollar, competition from cheap imports and skilled labour shortages were among the factors cited.

Note to readers
The Business Conditions Survey is conducted in January, April, July and October; the majority of responses are recorded in the first two weeks of these months. Results are based on replies from over 3,000 manufacturers and are weighted by a manufacturer’s shipments or employment. Consequently, larger manufacturers have a correspondingly larger impact on the results than smaller manufacturers. Except for the data on production difficulties, data in this release are seasonally adjusted.