Canadian Manufacturing Sales Fall 1.6% in March

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May 15, 2008

Canadian Manufacturing Sales Fall 1.6% in March

Source: Statistics Canada

Canadian manufacturers gave back some of their recent gains in March as factory sales retreated 1.6% to $49.0 billion.

The scope of March's slowdown was extensive as 18 of the 21 manufacturing industries, representing 76% of total sales, posted declines. A sharp downturn in motor vehicle manufacturing was the chief contributor.

Sales were down 7.7% compared with the peak level of $53.1 billion set in March 2007.

Manufacturing activity falters during the first quarter

In the first quarter of 2008, manufacturing sales fell 5.5% to $143.8 billion compared with the same period one year earlier. The ongoing slump in the auto sector contributed to the decrease.

March's decline in sales was the first in 2008 as manufacturers had recovered slightly from December's slowdown (-3.6%). Market uncertainty in the U.S., Canada's dominant trading partner, has contributed to volatility in some manufacturing industries.

In terms of the volume of goods manufactured, rising industrial prices for various commodities, including primary metals, petroleum products, grains and oilseeds, may be partly offsetting some of the weakness in the manufacturing sector. At 2002 prices, manufacturing sales fell 3.0% to $46.7 billion in March, the first decrease since December.

At the provincial level, Ontario (-2.9%) and Alberta (-1.4%) led the decreases among the six provinces reporting lower sales in March. Quebec's sales rose 0.3% on the strength of the aerospace industry.

Problems in Auto Sector

Labour strife at some North American auto parts plants contributed to a significant drop in the Canadian production of motor vehicles and parts in March. This was in addition to other factors affecting the industry, including a weakening US economy, rising energy prices and shifts in consumer demand for more fuel-efficient vehicles.

Manufacturing sales of motor vehicles dropped 6.2% to $4.0 billion in March. Temporary factory closures were also a factor in a 5.0% decline in the sales of motor vehicle parts.

Shipping delays contributed to a 3.0% decrease in manufacturing sales of chemical products in March. In addition, computers and electronic products manufacturers posted a 7.6% reduction in sales, the third decline in five months. Manufacturing sales of computers have been generally weakening over the last couple of years.

On the positive side, robust demand for aerospace products and parts drove up production levels 17.0% to $1.7 billion in March.

For the aerospace industry, the value of production is used instead of sales of goods manufactured. This value is calculated by adjusting monthly sales of goods manufactured by the monthly change in inventories of goods in process and finished products manufactured.

Higher prices for various metals contributed to a 2.9% advance in manufacturing sales of primary metals.

Inventories Edge Higher

A sizeable 1.1% drop in inventories of raw materials was entirely offset by increases in goods in process (+1.1%) and finished products (+1.3%). As a result, total inventories remained little changed in March at $65.5 billion (+0.2%), which followed a 0.6% decline in February.

Industries posting inventory gains in March included aerospace and primary metals, which were counterbalanced by declines in inventories of food, as well as those of the beleaguered wood products industry.

On the basis of weaker manufacturing sales during the month, the inventory-to-sales ratio advanced to 1.34 in March from 1.31 in February. March's level was in step with its recent high of December and January. The ratio has been on an upward trend since mid-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.

Orders Rise

The value of new contracts received and those already on the books continued to rise in March, as a result of robust demand for aircraft and parts.

New orders strengthened by 2.9% to $51.2 billion, on the heels of new aerospace contracts. Excluding the aerospace industry, new orders were down 2.2%.

Manufacturers' unfilled orders increased another 3.7% to $61.6 billion in March, surpassing the $60 billion mark for the first time.

The backlog of unfilled orders, which has been gradually rising over the last year and a half, was 20% higher than in March 2007 ($51.3 billion). Unprecedented demand for aircraft and related parts was largely responsible for the gain.

Excluding the aerospace industry, unfilled orders slipped 0.2% in March.

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