Canadian Manufacturing: Slight Uptick in November

Source: Statistics Canada

After holding steady in October, manufacturing sales increased by 1.1% in November. Sales improved by $573 million to $50.6 billion. Almost all of the increase in manufacturing was the result of a surge in petroleum and coal product sales during the month, which benefited from sharply rising prices.


Using constant dollars, the volume of manufacturing sales remained largely unchanged in November, edging down 0.1% compared with October. Rising prices played a significant role in increasing the total value of sales, as the Industrial Product Price Index rose for the first time in seven months (+0.6%). Constant dollar measurements take price fluctuations into account, providing an indicator of the volume of sales during the month.


Overall, just 11 out of 21 manufacturing industries increased their sales in November, although this represented almost two-thirds (65.5%) of total manufacturing.
 
Sales of non-durable goods looked to continue a turn-around, gaining 1.6% in November for a second consecutive monthly increase. These increases followed on the heels of four months of declining sales. Durable goods also reported an increase in November, with sales up 0.8%.

Unfilled factory orders advanced for the first time in three months, gaining 4.9% in November. New orders rebounded during the month, jumping 8.1% and slowing the downward trend seen throughout most of 2007.


November sales pumped up by petroleum producers
Petroleum and coal product manufacturers reported the most significant jump in sales, increasing by 7.7% or $424 million in November. However, the majority of the increase in sales can be accounted for by a 7.3% jump in petroleum and coal product prices during the month. Excluding petroleum and coal product manufacturers, manufacturing sales increased a more modest 0.3% in November.
 
Another area reporting improved sales was the primary metal industry. Sales increased 2.3% in November, despite prices falling 1.1%. Most of the strength was located in the central provinces, with Manitoba, Ontario and Quebec all posting increases. Sales by primary metal manufacturers have generally declined since April 2007, as they have been influenced by falling prices, which have decreased for seven consecutive months.


Transportation equipment manufacturers also increased sales in November. Motor vehicle manufacturers saw a 2.0% gain, partly due to rising production of several popular vehicle models which are manufactured in Ontario. Production of aerospace parts and products also gained on the month, rising 1.9% for a fourth consecutive monthly gain.


On the down side, paper product sales sagged 3.0% in November, as manufacturers continued to struggle with falling prices in the industry. Prices for paper products have decreased in eight of the past nine months.


Chemical product sales dropped 1.7% in November, as pharmaceutical and medicine manufactures saw sales slide after a big jump in October.


Provincial gains widely distributed
The provincial picture for manufacturing sales in November was generally positive, as seven provinces posted increases. Solid sales were seen across the Western and Central Provinces, while weakness was limited to the coasts.


Across the Prairie provinces, manufacturing sales showed strength in November. Saskatchewan led the pack with a 3.7% jump. Improved performances by food, petroleum and coal products, and machinery manufacturers helped to guide this increase. This was the seventh consecutive increase posted by machinery manufactures in Saskatchewan.


Alberta and Manitoba also reported gains, as sales of manufactured goods increased 2.1%

and 1.0% respectively. For Manitoba, this increase was a rebound from the 6.7% drop in October. Strength in primary metal manufacturing helped to lead the turnaround.


Ontario (+1.4%) and Quebec (+1.1%) both rose primarily on strong sales results by petroleum and coal products manufacturers. Transportation equipment manufacturers also played an important role in Central Canada, but in different ways. Motor vehicle manufacturing was the key in Ontario, driving the overall transportation sector up 1.3%. In Quebec, aerospace took the lead, propelling transportation equipment manufacturing up 2.9%.


Only the coastal provinces saw sales decline for the month. Newfoundland and Labrador (-5.6%) and British Columbia (-1.8%) both saw weaker sales as a result of slowdowns in paper manufacturing. Newfoundland has seen particularly soft manufacturing results recently, as November was the third consecutive monthly decrease for the province.
 
Unfilled orders pushed to record level by aerospace industry
Manufacturers reported a 4.9% jump in unfilled orders in November, after back-to-back decreases in September and October. The backlog of orders surged to $56.2 billion, a record high. Unfilled orders are considered an indicator of future strength of manufacturing sales. Other than the decrease in September and October, unfilled orders have increased in 13 of the past 15 months.


Aerospace product and parts manufacturers, which accounted for about 45% of unfilled orders, continued to be the driving force behind the gains. Virtually every major company within the aerospace industry reported an increase to unfilled orders in November, as the industry gained 11.6% as a whole. Excluding aerospace, unfilled orders for the month barely advanced, gaining only 0.1%.


The only significant decrease to unfilled orders came from computer and electronic product manufacturers. Unfilled orders fell 2.3% in November, the third decrease in the past four months.
 
New orders spring back
New orders surged to a four month high, jumping 8.1% to $53.2 billion. Despite the jump in November, new order levels have been trending lower after peaking at $56.2 billion in January 2007, with decreases in 7 of the past 10 months.


The transportation equipment industry was responsible for most of the increases in new orders in November, surging 38.0% or $3.3 billion. Aerospace product and parts manufacturers, as well as ship and boat building manufacturers reported the strongest gains within the transportation sector.


Manufacturers in the fabricated metal industries also saw an increase in new orders in November. New orders within this industry increased 6.3%, or $196 million, for a second consecutive month of solid gains.


Inventory levels rise for the first time since July
In November, manufacturers reported total inventory levels increased by 0.5% in November, the first gain in four months. The increase in November was widespread, as raw materials (+0.3%), goods and work in process (+0.6%), and finished product inventories (+0.7%) all increased.


The value of inventories increased $337 million to $65.5 billion in November. Despite the increase, inventory levels have been trending downwards since October 2006. Prior to the recent downward trend, inventory levels increased from 2004 to the end of 2006.


The key contributor to the increase in manufacturers' inventories came from petroleum and coal products, which jumped 12.9% to $4.1 billion. This was only the second increase in the value of inventories in the last seven months.


The aerospace product and parts industry also surged, gaining 4.3% to $4.6 billion, with most of the inventory increase coming from goods and work in process.


Chemical manufacturers were one of the few industries reporting a sizeable decrease of inventories. Levels dropped 1.6% to $7.0 billion for the fourth consecutive monthly decrease.
 
Inventory-to-sales ratio stabilizes
The inventory-to-sales ratio remained unchanged at 1.30 in November and has remained fairly stable over the last four months after a moderate increase between March and July. A 0.5% gain in inventories mostly balanced the 1.1% increase in sales.


The inventory-to sales ratio is a measure of the time, in months, that would be required to exhaust inventories if sales were to remain at their current level.


The finished-product inventory-to-sales ratio also held steady, remaining at 0.44 in November.