Soaring industrial product prices and robust demand for resource-based goods offset declines in some of Canada’s key durable goods industries in 2007, according to a Statistics Canada report. Overall, there was little change in both the volume and value of manufacturing sales.
 
Manufacturers posted a modest 0.4% increase in sales to $613.4 billion, according to a year-end review, published in the Analysis in Brief series. In constant dollars, factory sales were essentially flat, following a lacklustre 2006 in which sales edged down.
 
Manufacturers had a mixed year in other respects in 2007. Employment fell by an estimated 55,300 jobs and total hours worked declined 2.9%. However, labour productivity in the sector increased 1.9% last year, nearly four times the gain for the economy as a whole. Operating profits also increased, halting two consecutive years of declines, but capital investment slid.
 
As in previous years, manufacturers faced several major challenges, including the rising exchange value of the Canadian dollar and the weaker export market in the U.S. The Canadian dollar surpassed parity with its U.S. counterpart by late September, making Canadian-manufactured goods more expensive south of the border. In addition, events in the U.S., such as the ongoing sub-prime mortgage situation and declining consumer confidence, weakened demand for Canadian-made goods in this market. However, exports to other countries increased.
 
The food industry was still Canada’s largest manufacturing industry last year in terms of sales. However, the petroleum and coal products industry surpassed motor vehicles for the first time to become the second largest.

On the negative side, sales by manufacturers of wood products plunged to their lowest level since 1996. Manufacturers of automobiles and trucks also continued to sputter, posting lower sales compared with 2006.

Central Canada’s dominance as the manufacturing heartland continued to weaken ever so slightly, as the western provinces capitalized on strong demand for their high-priced resources.
 
Higher Prices
Higher prices have been a significant factor in boosting the value of sales in two key industries during the past five years. Between 2003 and 2007, prices for both petroleum and coal products and primary metals have soared about 65%.

Excluding these two price-inflated industries, total manufacturing sales would have declined 1.1% in 2007, after a 1.4% drop in 2006.

Petroleum and coal products manufacturers recorded the largest growth of all manufacturing sectors in dollar terms, reaching $66.4 billion in 2007. The increase was fuelled mainly by higher petroleum product prices. As a result, this industry increased its share of total manufacturing sales to 10.8%.

Canada’s primary metals industry was the second biggest gainer last year as its sales rose to $53.8 billion, buoyed by escalating prices and international demand. Hence, the industry maintained its fourth place standing among the largest industries.

On average, the industrial price of primary metals rose just over 10% in 2007, following unprecedented price gains since 2004. The industrial boom in China and India has fortified prices for such commodities as nickel, gold and other primary metals.

The food industry remained the largest industry as factory sales of food rose 2.9% to $74.2 billion, following a healthy 6.8% gain in 2006.

On the flip side, the biggest decline among all manufacturing industries occurred in sales of wood products, which plunged 15.6% to $24.9 billion, the lowest level since 1996.

Motor vehicle manufacturing, the largest industry in the transportation equipment sector, continued to sputter. Sales by manufacturers of automobiles and trucks declined a sharp 2.7% to $60.8 billion last year. It was the third consecutive decline, although it was well off the 6.5% drop in 2006. Overall, manufacturing sales of motor vehicles have fallen by over 22% from their peak of $78.3 billion in 1999.

By Province
Central Canada’s dominance as the manufacturing heartland continued to weaken ever so slightly, as the western provinces continued to capitalize on demand for their high-priced resources.

Manufacturing activity in the West rose a moderate 0.6% in 2007, after three years of strong growth. As a result, sales west of Ontario accounted for 22% of the national total, up from 19% in 2003.

Ontario remained the leading manufacturing province in Canada, accounting for almost 48% of the national sales total, but this was well below the proportion of 55% in 1999.

In Ontario, factory sales fell 1.1% to $293.4 billion, the lowest level since 2001. Steep declines in the motor vehicles and parts, wood products and chemical products industries were partially offset by gains at the province’s refineries, and an upturn in the manufacturing of telecommunications equipment.

In Quebec, factory sales rose 2.1% to $150.4 billion, in the wake of strong gains in primary metals, food and aerospace. The province accounted for about 25% of national sales in 2007.

An expansion in non-durable goods manufacturing contributed to a boost in the share of total sales held by the four Atlantic provinces. In 2007, they accounted for a little more than 5% of sales nationally, up from 4% in 1999.

Manufacturing job losses mount
An estimated 55,300 factory jobs were cut in 2007, a 3.0% decrease from 2006, according to the Survey of Employment, Payroll and Hours. It was the largest annual drop since the recession of the early 1990s.

On the other hand, productivity in the sector surged 1.9% in 2007, nearly four times the 0.5% gain in productivity for the economy as a whole.

This was due mainly to a decline in the number of hours worked, which fell more than twice as fast as manufacturing output. Real gross domestic product in manufacturing edged down 1.1% in 2007, while the number of hours worked dropped 2.9%, reflecting the sector’s job losses.

Operating profits halted a two-year downward trend last year, rising 5.4% to $45.0 billion, the highest level since 2004. In fact, manufacturers’ profits outperformed the 5.0% growth in profits seen by Canadian non-financial corporations as a whole.

The analytical article Manufacturing: The Year 2007 in Review” is now available online free as part of the Analysis in Brief series from the Publications module of the Statistics Canada Web site.