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Canadian Manufacturing Sales Drop 3.4% in December
February 19, 2008
Canadian manufacturing sales dropped 3.4% to $48.6 billion in December, the lowest level in three years. Longer-than-normal shutdowns at several motor vehicle plants were the primary source of the deep cut in sales.
Excluding the motor vehicle and parts industries, total manufacturing sales decreased a more moderate 0.8% in December.
December's decline was the largest since August 2003, when a widespread electrical blackout and its fallout thereafter impacted much of Ontario's production during that month.
Deep cuts in volumes manufactured Despite ongoing strength in key price-driven industries, overall manufacturing activity decreased in four of the last five months, due in part to some significant cuts in the volume of goods manufactured.
At 2002 prices, manufacturing sales plunged 5.8% to $46.7 billion, the lowest level since August 2003. Over the past five months, the volume of goods manufactured has declined 8.7%. Excluding the dominant transportation equipment sector, sales at 2002 prices fell 2.1% in December.
Big spike in the inventory-to-sales ratio December's big decline in sales contributed to a spike in the inventory-to-sales ratio for the month as the ratio vaulted to 1.33 from November's 1.29. The ratio had been relatively stable in the range of 1.30 for the last six months. December's level was the highest since October 2006's 1.36.
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.
Manufacturers face an uphill battle The majority of manufacturing industries were battered in December as 16 of the 21 industries posted lower sales, accounting for almost two-thirds of total sales.
In 2007, manufacturers coped with a variety of circumstances that contributed to the marked slowdown in the sector.
Among the most prominent was the soaring value of the Canadian dollar, which at the end of 2007 flirted again with parity to the US greenback. The higher-valued dollar makes Canadian-made goods more expensive to many foreign customers.
By late December, world petroleum prices spiked again as crude oil closed in on US$100 per barrel.
Meanwhile, recent indications from south of the border have suggested that the US economy may be headed to a recession. Since the United States is Canada's principal trading partner, this could have a detrimental impact on the Canadian manufacturing sector.
Manufacturers are apprehensive Accordingly, manufacturers' mood for the coming three months remained apprehensive, as suggested by the Business Conditions Survey for January. Manufacturers are expecting tougher times ahead, with lower production and employment over the first quarter of 2008.
Factory payrolls fared poorly in December as there were 33,000 fewer manufacturing jobs compared with November. Employment was down almost 130,000 (-6.2%) compared with December 2006, according to the Labour Force Survey.
Motor vehicles drag down sales Manufacturing sales of motor vehicles plummeted 24.9% to $3.8 billion in December. Over and above the usual Christmas shutdowns, some manufacturers extended closures for inventory control measures and re-tooling, largely contributing to the biggest monthly decline since 1996.
A general weakening of the US economy has contributed to substantial unease in the Canadian automotive sector, as the bulk of motor vehicles made in Canada are shipped to the United States.
The ongoing slump in the wood products industry, coupled with a sharp drop in non-metallic mineral products