Manufacturing Sales Up in Canada in February

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April 16, 2008

Manufacturing Sales Up in Canada in February

Source: Statistics Canada, www.statcan.ca

Sales of goods manufactured rose 1.6% to $50.1 billion in February, due in part to a gradual bounce-back by Canada's motor vehicle industry.

This marked the second successive increase in manufacturing sales, as manufacturers continued to make up ground lost after a tough December (-3.7%).

The volume of goods manufactured also improved in February. At 2002 prices, manufacturing sales rose 2.7% to $49.0 billion, following a 2.2% increase in January. Again, contributing to the boost in volumes produced were several automotive manufacturers who continued to ramp up production during the month.

Despite the consecutive increases, manufacturing sales were well off levels of one year ago as the sector coped with an array of economic concerns. February's sales remained 2.3% below levels of the same month in 2007, and significantly below March 2007's peak of $53.1 billion (-5.6%).

Sales levels in recent months have proven tenuous for many manufacturers. The economy of Canada's largest trading partner, the United States, continued to slow due in part to their ongoing credit crunch and housing crisis. Meanwhile, input costs continued to rise, due in part to soaring energy prices, while the sustained strength of the Canadian dollar eroded manufacturers' abilities to be competitive in the global market.

As a result, manufacturers continued to layoff workers. According to the recent release of the Labour Force Survey for March, manufacturers have cut thousands of jobs from their payrolls, including 23,700 in February and another 9,400 in March.

Auto assembly plants ramp up production

The majority of manufacturing industries (13 of 21) posted higher sales in February, accounting for a healthy 84% of total sales.

While nondurable goods industries saw a 0.4% increase in sales, manufacturers of big-ticket, durable goods dominated with a 2.6% boost to $26.2 billion. This strength was due in large part to advances in motor vehicle manufacturing.

Following extensive production slowdowns and shutdowns in December and into January for the purposes of re-tooling and inventory control, manufacturing sales of motor vehicles jumped 11.7% to $4.3 billion in February. This followed a 3.9% gain in January, and a deep cut of 27.3% in December to close 2007.

Notwithstanding the scale of February's rebound, manufacturing sales of motor vehicles remained well off levels of one year ago (-20.5%). Recent reports of deteriorating car and light truck sales in the United States, where the bulk of Canadian-made vehicles are shipped, indicate uncertain times ahead for the industry.

Production of aerospace products and parts surged 11.6% to $1.5 billion in February, the first increase since November. A backlog of orders for both civilian and defence aircraft and parts should contribute to some strong months ahead.

Excluding the transportation equipment sector, which includes motor vehicles and aerospace industries, manufacturing sales rose a more moderate 0.4% over the month.

Fuelled by robust global demand and prices, manufacturing sales of primary metals advanced 1.4% to $4.3 billion, the third increase in four months.

A 4.9% decline in the electrical equipment, appliance and components industry slightly counterbalanced the overall rise in total manufacturing sales. This small but diversified industry manufactures such commodities as kitchen appliances and lighting fixtures, to communication and energy wire, and cables.

Sales increase in seven provinces

Manufacturing sales increased in seven provinces during February, with Ontario, New Brunswick and Quebec accounting for the bulk of the rise.

Total manufacturing sales improved 2.4% to $23.5 billion in Ontario, following a 2.2% gain in January. The increase was due to a continuing recovery in the motor vehicles industry, which had experienced a sharp decline in December.

Nondurable goods industries contributed to a 10.0% gain in New Brunswick's manufacturing sales to $1.5 billion.

In Quebec, manufacturing sales rose for the second month in a row, up 0.6% to $12.4 billion. Quebec's manufacturing sector is currently in line with the value of sales produced a year ago.

Alberta was the main offsetting province in February, as sales declined by 0.4% to $5.6 billion.

The decline was partly due to maintenance shutdowns in the petroleum products industry.

Inventories decline slightly

Manufacturers posted a modest 0.3% drop in total inventories to $65.6 billion in February. The decrease was concentrated in the primary metals (-2.8%) and aerospace products (-3.1%) industries, which were partly offset by a rise in inventories of petroleum products (+7.8%) and food (+1.4%).

Inventories in the petroleum and coal products industry jumped 7.8% to $4.7 billion in February, following a 9.4% increase in January, as refineries tried to keep pace with strong demand.

Excluding the petroleum products industry, total manufacturing inventories fell by 0.8%.

By stage of fabrication, inventories of raw materials expanded by 0.5%, while goods in process and finished products declined by 0.6% and 1.0% respectively.

Strong sales pull down the inventory-to-sales ratio from recent high

February's healthy increase in manufacturing sales, coupled with the slight drop in inventory levels, caused the inventory-to-sales ratio to edge lower for the second consecutive month.

The ratio fell back to 1.31 from January's 1.33, and was down from its most recent high of 1.34 in December. December's spike was attributable to the widespread slowdown of the manufacturing sector at the close of 2007.

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.

Unfilled orders inch higher

Manufacturers' backlog of unfilled orders edged 0.1% higher to $59.9 billion in February, the fourth increase in a row.

Over the last 18 months, unfilled orders have been on a steady climb, due in large part to strong demand for aerospace products and parts. Overall, February's orders were up a substantial 17.5% (+$8.9 billion) compared with February 2007.

Among the key movers, healthy increases in unfilled orders for furniture (+7.4%) and fabricated metal products (+0.9%) were largely offset by a substantial decline in the primary metals industry (-6.0%).

Recent volatility in new orders

Manufacturers gave back much of January's 3.2% gain as new orders fell 2.9% to $50.1 billion in February. A steep decline in new orders of aerospace products and parts and computers and electronic products were the primary contributors. This followed sizeable increases in new contracts received by both industries in January.

In general, the level of new orders has gradually weakened over the last year, which currently stand 6.5% below February 2007's level.

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