Manufacturing held steady in May
Ottawa, ON -- After a slight decrease in April 2007, manufacturing shipments remained virtually unchanged in May (-...
Ottawa, ON — After a slight decrease in April 2007, manufacturing shipments remained virtually unchanged in May (-0.1%) at $49.7 billion, according to Statistics Canada’s latest Monthly Survey of Manufacturing. Manufacturing shipments had trended slowly downwards throughout most of 2006, before posting a strong first quarter in 2007.
Manufacturers continued to face several challenges during May. The Canadian dollar appreciated significantly against its American counterpart, reaching a 30-year high by the end of May. In addition, the Labour Force Survey reported a 0.6% drop in manufacturing employment during the month, a loss of 12,300 jobs.
Despite these challenges, the volume of manufacturing shipments, using constant dollars, rose 0.4% to $45.5 billion. After increasing in seven of the last eight months, constant dollar shipments reached their highest level since the beginning of 2006. The constant dollar measurement takes price fluctuations into account, providing an indicator of the volume of shipments during the month.
On a sector by sector basis, only 9 of 21 manufacturing industries decreased in May, but they represented about 57% of total shipment outputs.
Durable goods were the main source of weakness in May, declining 1.2% to $26.7 billion, following a sharper loss of 2.0% the previous month. Among durable goods producers, primary metal manufacturers posted one of the most significant declines during the month.
On the other hand, shipments of non-durable goods continued to strengthen, especially in resource-based industries. Manufacturers of petroleum and coal products, chemical products, and plastic and rubber products pushed non-durable good shipments up 1.2%, the fourth consecutive monthly increase.
Unfilled factory orders continued to increase, rising 1.8% in May for an eighth consecutive monthly gain. Unfilled orders can be used as an indicator of probable future shipments. New orders, which may include orders received and shipped during the month, slipped 0.5%.
PRIMARY METAL MANUFACTURERS TAKE A BREAK
After four months of strong gains, primary metal manufacturers reported a 4.1% decrease in shipments during May. Demand in Asia for primary metal products combined with rising prices had steadily pushed shipment values higher since the beginning of 2007. However, a two-week shutdown of a major manufacturing plant, combined with a 1.2% drop in prices compared with April, had a dampening effect on the industry in May.
Transportation equipment manufacturers posted mixed results in May, edging down 1.3%. Motor vehicle shipments slipped an additional 1.2% in May after a sizeable 11.9% decrease in April. A rail strike earlier in 2007 resulted in some subsequent volatility within the industry. Automotive parts shipments also decreased (-2.9%), following a similar-sized drop in April. Temporary plant shutdowns as well as a plant closure in May had an impact on the results for automotive parts manufacturers.
Shipments of aerospace products and parts were a bright spot in the transportation industry, reversing April’s decrease with an 8.7% surge in May. Shipments within this sector have been trending upward since the beginning of 2006.
Petroleum and coal manufacturers reported a 4.1% increase in shipments, a fifth consecutive monthly gain. Shipments had eased slightly in the fall of 2006 as prices pulled back somewhat. However, shipments in May rose close to the record levels last seen in the summer of 2006, in part due to price increases in recent months.
STRENGTH IN THE PRAIRIE PROVINCES BALANCES WEAKER RESULTS IN THE EAST
A strong performance in the Prairie Provinces helped to balance out what was an otherwise lacklustre May for manufacturers in Central and Eastern Canada. Nationally, six provinces experienced a drop in total manufacturing shipments.
Manufacturers in the Prairie Provinces showed strength, posting a 3.5% gain in shipments, offsetting the 2.6% loss the previous month. Alberta led the way with a robust 3.7% jump to $5.7 billion on the strong performances in computers and electronics (+22.7%), non-metallic minerals (+8.8%), and petroleum and coal products (+8.5%).
Shipments from Manitoba and Saskatchewan both moved ahead 3.1% in May. Manitoba’s shipment growth of $40 million regained some of the $136 million (-9.6%) lost in April. The gain was fuelled by the transportation and primary metal sectors, the industries that were responsible for the previous month’s drop. For Saskatchewan, the largest sector, food products, was propelled upward 6.4% on the strength of oilseed processing.
Manufacturers in Quebec saw shipments decrease 1.0% in May. This was the first monthly loss recorded by the province since January. Primary metals (-8.3%) and paper products (-4.8%) were significant contributors to the deceleration in Quebec’s strong shipment growth.
Ontario’s manufacturing shipments decreased 0.2% to $23.9 billion, with 12 of 21 industry sectors reporting losses.
Resource-based manufacturing was at the core of shipment decreases in British Columbia (-2.2%) and Atlantic Canada (-3.1%) in May. In British Columbia, wood products dropped 6.2%, putting a damper on the largest sector in the province.
For Atlantic Canada, New Brunswick manufacturers had a particularly weak month. Provincial shipments declined by 6.0%, due to a combination of declines in resource-based sectors, including petroleum and coal products, primary metals and food products.
UNFILLED ORDERS SURGE FOR AEROSPACE MANUFACTURERS
Manufacturers’ backlog of orders continued to swell, increasing by 1.8% in May to $49.1 billion. This was the eighth consecutive monthly increase in unfilled orders, which may be considered as an indicator of the future strength of manufacturing shipments.
The trend for unfilled orders has been steadily improving since last summer, increasing almost 20% since May 2006. However, excluding aerospace products and parts, unfilled orders have increased only 1.1% in the past year.
Unfilled orders for aerospace products and parts jumped 4.0% to 21.2 billion, the highest level since March 2002. In May, unfilled orders for the aerospace industry were up about 56% compared with May 2006.
Manufacturers in the miscellaneous group also saw unfilled orders continue to surge in May, gaining 22.3% compared with April. This was the sixth increase in unfilled orders in the past seven months. Unfilled orders in this industry have almost doubled since December 2006, largely because of strength in medical equipment and supplies manufacturing.
One of the primary offsetting factors for unfilled orders in May was a pull back in computer and electronic products and parts. Unfilled orders had surged 8.2% in April, but fell back 4.7% in May to $3.4 billion.
NEW ORDERS EDGE DOWN
New orders edged down 0.5% in May to $50.5 billion. After surging in December 2006, new orders have largely stabilized around $50 billion in 2007, experiencing only modest month-to-month fluctuations.
Computer and electronic products contributed the largest decrease to new orders in May, plummeting 27.7% after a 24.1% increase in April.
On the other hand, new orders of aerospace products and parts jumped 18.5% after remaining largely unchanged in April.
INVENTORY LEVELS DECREASE SLIGHTLY
Inventory levels decreased 0.4% to $62.9 billion following two months of minimal increases. Inventories have eased down slightly in the past six months after rising considerably between January 2005 and September 2006.
In total, 10 of 21 industries reported a decrease to their inventories in May. Manufacturer’s total inventories decreased slightly, largely due to declines in three industries. The sharpest decrease was an 8.8% drop in motor vehicle inventories. Computer and electronic products manufacturers (-5.3%) and primary metal manufacturers (-1.9%) also reported notable inventory declines.
INVENTORY-TO-SHIPMENT RATIO REMAINS STEADY
ventory-to-shipment ratio remained unchanged in May at 1.27. The ratio had reached a recent low of 1.25 in March after peaking at a three-year high of 1.33 in October 2006. Over the past five years, the inventory-to-shipment ratio has ranged between 1.22 and 1.38. May’s result was slightly below the five-year average of 1.28.
The inventory-to-shipment ratio is a key measure of the time, in months, that would be required to exhaust inventories if shipments were to remain at their current level.