Monthly Survey of Manufacturing

Following a lacklustre finish to 2004, manufacturers rebounded in January with solid gains in shipments and orders. Wide ranging increases contributed to a 3.0% surge in shipments to $51.5 billion, while new orders soared 7.1% and manufacturers' backlog of unfilled orders jumped 5.2% ending a five-month slide.

The impact of the strong Canadian dollar, coupled with high input costs took a toll on the manufacturing sector in the later months of 2004. Prospects however, improved in January as a combination of higher volumes of production and a bounce-back in industrial prices contributed to strong shipment gains at the start of the year. At 1997 prices, shipments jumped 3.2% to $48.6 billion in January, following a 0.4% decline in December.

Strength across most manufacturing sectors

The bulk of manufacturing industries (16 of 21), posted increases accounting for 86% of total shipments in January. Durable goods manufacturers boosted output by a sizable 4.5% to $29.7 billion. Leading the way were big-ticket industries including aircraft and parts, heavy trucks, motor vehicles and machinery, as they worked their way through various orders during the month.

Shipments of nondurable goods rose 1.0% to $21.9 billion, making up some of the ground lost in December when lower petroleum prices contributed to a 1.4% drop in shipment values.

In January, the transportation equipment sector contributed to sizable increases in shipments for Ontario and Quebec, where most of Canada's manufacturing takes place. Most provinces posted higher shipments with only Newfoundland and Labrador, Prince Edward Island and the territories reporting declines.

Employment picked up in January

January's boost in shipments was in step with a small rise in factory jobs. According to the Labour Force Survey, manufacturing employment edged up by 14,000 jobs in January, but fell by 28,000 in February bringing losses over the last nine months to 43,000 (-1.9%).

US manufacturers continued to deliver

In contrast to Canada over the last few months, US manufacturers have been enjoying a long run. Canada's principal trading partner reported big gains in computer manufacturing which boosted total US shipments by 1.4% to $389.4 billion in January, the eighth increase in the last nine months. Meanwhile, US unfilled orders declined for only the first time in the past 11 months (-0.2%). Strong domestic and foreign demand has benefited US manufacturers over the last year.

Transportation equipment drives manufacturing

Robust demand for heavy duty trucks and Canadian-built autos and light trucks boosted motor vehicle shipments 5.9% to $6.4 billion in January.

In recent months, some manufacturers of heavy trucks have experienced a shortage of parts, which is now contributing to the sizable gain in January's shipments of motor vehicles as product starts to move again. Meanwhile, Canada is home to the assembly of several popular models of automobiles and light trucks, which also contributed to the overall boost in shipments. January marked the second increase in a row for motor vehicle shipments. The industry's trend has been slowly improving over the last couple of months.

On the whole, the transportation equipment sector, which also includes aerospace and motor vehicle parts manufacturing, posted an 8.6% rise in shipments. Excluding the transportation sector, total manufacturing shipments remained up a healthy 1.5%, further confirming the extent of the bounce back in manufacturing activity in January.

However, recent reports have indicated a slowdown in automobile sales, particularly in the United States. High gasoline costs and over-consumption of new cars in recent years are some of the several factors which may contribute to a softening of demand in the months to come. Close to 80% of Canadian-made vehicles are exported south of the border.

Production of aerospace products and parts soared 32.8% to $1.3 billion in January, the highest level since the summer of 2001. Unfilled orders for aircraft and parts, which bottomed out at $11 billion in September 2004, have been gradually on the rise once again. The machinery (+7.7%) and the motor vehicle parts (+5.3%) industries also reported healthy increases in shipments to start the new year.

Manufacturers' inventories on a steady rise

In January, manufacturers' inventories climbed another 1.2% to $63.7 billion, marking the 13th successive increase. The last time inventories behaved like this was during the high-tech boom of 1999 and 2000 when 14 consecutive monthly increases were registered. Industries contributing to the higher inventory levels included primary metals (+3.1%), fabricated metal products (+3.3%) and aerospace products and parts (+2.6%) manufacturing.

Inventories of raw materials rose 1.3% to $27.5 billion, the highest level since May 2001. Weaker demand in the fourth quarter of 2004 saw manufacturers reduce raw materials in recent months.

Finished product inventories, which have been on an upward trend over the last year, increased another 1.0% to $21.9 billion in January. Meanwhile, aerospace and motor vehicle manufacturers contributed to a 1.5% rise in goods-in-process inventories to $14.3 billion.

Big shipment gains pulls down the inventory-to-shipment ratio

January's strong rebound in shipments largely contributed to the downward movement of the inventory-to-shipment ratio to 1.24 from December's recent high of 1.26. This marks the lowest ratio since September (1.23). The ratio began to trend upwards in the second half of 2004 as the manufacturing sector showed signs of weakening.

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

New orders soar

Manufacturers loaded their books with new contracts in January. A surge in new orders for aerospace products and parts and motor vehicles drove up total orders 7.1% to $53.4 billion.

Although the lion's share of the rise in new orders was concentrated in the transportation equipment sector, other durable goods industries including machinery and fabricated metal products, contributed to the wide ranging scope of the increase. Excluding the transportation sector, new orders remained up a healthy 3.2%.

The surge in new contracts lifts unfilled orders

Following five monthly declines, manufacturers reported a 5.2% jump in unfilled orders to $38.5 billion, the highest level since April 2003. The trend for unfilled orders had markedly weakened over the second half of 2004, but has since moderated with January's strong report.

A combination of new contracts received and a slowdown in the manufacturing of heavy trucks due to the parts' shortages in recent months boosted the orders' books of manufacturers. The aerospace industry, which has been in the doldrums since late 2001, has shown signs of a possible renewal. International demand for business jets, parts and other aerospace products boosted orders 11.5% to $12.9 billion, a 19-month high.

Other industries including machinery (+3.9%), motor vehicles (+20.6%) and fabricated metal products (+3.3%) added orders to their backlog in January.

Available on CANSIM: tables 304-0014, 304-0015 and 377-0008.

Definitions, data sources and methods: survey number 2101.

Data on real manufacturing shipments, orders, inventories, and inventory-to-shipment ratio, seasonally adjusted and deflated to 1997 prices are now available on CANSIM: Table 377-0008. All data have been revised back to January 1997 and will now be updated on a monthly basis.

The 2004 annual review of manufacturing shipments by province will be released soon.

The publication Monthly Survey of Manufacturing (31-001-XIE) has been discontinued. Reference month December 2004 was the final issue of the publication. Data for the Monthly Survey of Manufacturing program will continue to be available on CANSIM, Canadian Statistics and by special request.

Data from the February 2005 Monthly Survey of Manufacturing will be released on April 15.

For general information or to order data, contact the dissemination officer (1-866-873-8789; 613-951-9497; fax: 613-951-9499; manufact@statcan.gc.ca). To enquire about the concepts, methods or data quality of the release, contact Russell Kowaluk (613-951-0600, kowarus@statcan.gc.ca), Manufacturing, Construction and Energy Division.

For more information on the deflation of the Monthly Survey of Manufacturing data, contact Bernard Lefrançois (613-951-3622; fax 613-951-3688; bernard.lefrancois@statcan.gc.ca), Industry Measures and Analysis Division.