Monthly Survey of Manufacturing

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The motor vehicle industry pulled manufacturing sales lower in August, after having the opposite impact in July.

Manufacturing sales pulled back 1.7% in August, erasing the 1.3% gain from July. Sales of goods manufactured decreased to $51.2 billion from $52.1 billion a month earlier.

In August, as throughout most of the past 12 months, manufacturing sales continued to be heavily influenced by fluctuations in the transportation equipment industry. Excluding the motor vehicle and parts industries, sales increased 0.2% in August, the eighth increase in the past 12 months.

Using constant dollars, the volume of sales decreased 2.7% to $49.9 billion, only the second decrease in the past six months. The decrease in constant dollar sales was the largest percentage decrease since a 3.3% drop in April 2006.

On an industry-by-industry basis, 11 of 21 manufacturing industries, representing about 56% of total sales, decreased in August.

Sales of durable goods dropped 2.8% in August. This was the fourth decrease in the past five months and mirrored declines in the transportation sector, which accounts for about one-third of its total. Non-durable good sales were also down in August, decreasing by 0.4% for a third consecutive monthly decline.

New orders dropped 5.0% in August after a strong July, as aerospace product and parts manufacturers reported a sharp decrease. Unfilled factory orders paused for the first time in a year, edging down 0.1% compared with July.

Motor vehicle industry at forefront of weaker sales

The transportation equipment sector as a whole was down 9.7% in August, erasing most of the 10.8% gain from the previous month. The motor vehicle industry in particular was weak as demand in the United States continued to slump.

According to the Canadian International Merchandise Trade report, passenger car exports were down 8.5% and motor vehicle parts exports were down 3.5% in August. The United States accounts for about 85% of the market for Canadian manufactured motor vehicles and motor vehicle parts.

Manufacturers' sales of motor vehicles tumbled 12.8% in August, and motor vehicle parts sales dropped 11.6%.

Wood product manufacturers reported a sales drop of 2.3% in August for a second month of declines. Ongoing strikes in Western Canada, in addition to falling lumber prices and slumping demand in the US, are affecting the industry.

Despite the weakness in the transportation industry in August, there were some bright spots during the month. Aerospace products and parts manufacturers reported that production increased 3.8%, recovering some of the 13.4% drop in July.

Primary metal manufacturers also reported some good news, as a two-month-long strike at a major Quebec plant was cleared up by the end of July. Sales advanced 3.5% in August to $4.6 billion, despite a 5.2% drop in primary metal prices.

Ontario manufacturers slump in August

Manufacturing sales were evenly split at the provincial level in terms of gains and losses in August. However, a sharp decrease in Ontario sales overshadowed some strength amongst the remaining provinces. Excluding Ontario, manufacturing sales were up 1.1% in August.

Ontario reported the sharpest percentage decrease in provincial manufacturing sales, dropping 4.6% or $1.2 billion. Overall, 15 of 21 industries in Ontario reported a decrease compared with July, led by an 11.7% drop in the transportation industry. Automotive manufacturers reported a particularly soft month, with most of the major players reporting weaker sales compared with a year earlier. Of Canada's top motor vehicle manufacturers, 9 in 10 are located in Ontario.

Saskatchewan had a strong month of sales, surging ahead 15.4% compared with July. Most of the strength in August came from a jump in primary metal manufacturing, due in part to a company takeover and expansion over the summer. Food product sales were also strong, gaining 8.2%. Grain and oilseed milling as well as dairy manufacturers reported higher sales in August.

Newfoundland and Labrador also reported improved results in August, with an increase of 12.7% after a 24.6% slump the previous month. Most of the gains were due to stronger sales of food products and petroleum and coal products compared with July.

Unfilled orders slow after year of strong growth

For the first time in 12 months, manufacturers' backlog of orders edged down slightly (-0.1%) to $54.9 billion. However, unfilled orders remained 33% above levels in August 2006. Unfilled orders may be considered an indicator of future sales, assuming orders are not cancelled. The trend for unfilled orders has been steadily improving since last summer.

Strong demand for both defense and civilian aircraft and parts had been driving much of the strength in unfilled orders over the past 12 months. Unfilled orders in the aerospace industry have surged almost 64% in the past year. However, in August unfilled orders for aerospace products and parts remained largely unchanged (+0.3%) at $23.4 billion.

Manufacturers in the miscellaneous group had also reported a swelling of unfilled orders, more than doubling levels in the past 12 months. However, growth of unfilled orders for miscellaneous manufacturers also slowed in August, gaining only 0.4%.

These lower than normal increases were offset by sizeable decreases in two industries. Non-metallic mineral product manufacturers reported a widely based 13.4% decrease in unfilled orders in August. Plastic and rubber product manufacturers also reported lower levels of unfilled orders, down 9.2% compared with July.

New orders fall sharply

After a sizeable jump in July, new orders slumped in August, pulling back 5.0%. The aerospace product and parts industry, which is highly volatile due to the size and frequency of major orders, was largely responsible for the drop, tumbling 50.2% after having surged 70.3% the previous month.

Other industries reporting sizeable drops in new orders were motor vehicle parts manufacturers (-11.2%) and plastic and rubber product manufacturers (-8.8%).

Electric equipment, appliance and components manufacturers reported the largest increase in new orders, gaining 9.5% compared with July.

Inventory levels decrease slightly

In August, manufacturers' total inventories edged down 0.2% to $66.7 billion. Inventory levels have remained flat over the past five months after decreasing slightly at the end of 2006 and the first few months of 2007. The decrease in August was largely due to a 1.0% dip in finished product inventories.

The split was fairly even in August, with 11 of 21 industries reporting a decrease to their inventories.

Wood product manufacturers reported one of the sharpest declines in inventories, dropping 3.7% to $4.2 billion. Inventories are being reduced in light of ongoing strikes and decreased production in the West. Wood product inventories also declined in July.

Inventories held by primary metal manufacturers also decreased in August, declining by 1.6% to $7.2 billion. The value of inventories has been in step with price drops within the industry, as both industry prices and the reported value of inventories have dropped for four consecutive months.

Aerospace products and parts manufacturers saw one of the larger increases to inventory levels, gaining 2.2% to $5.0 billion.

Inventory-to-sales ratio edges up

Despite a slight decline in inventory levels, the sharper drop in manufacturing sales resulted in the inventory-to-sales ratio nudging upwards in August. The inventory-to-sales ratio moved up a peg to 1.30, the highest level since January.

After a recent peak of 1.36 in October 2006, there was some tightening of inventories in the subsequent months as the ratio edged down to 1.25 by March. However, inventory levels have remained fairly stable in recent months, while manufacturing sales have trended downwards gradually since April.

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.

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

Definitions, data sources and methods: survey number 2101.

Data from the September Monthly Survey of Manufacturing will be released on November 15.

For general information or to order data, contact the dissemination officer (toll-free 1-866-873-8789; 613-951-9497; fax: 613-951-9499; manufact@statcan.gc.ca). For more information or to enquire about the concepts, methods or data quality of the release, contact Elton Cryderman (613-951-4317, elton.cryderman@statcan.gc.ca), Manufacturing, Construction and Energy Division.

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