Monthly Survey of Manufacturing

Manufacturers took a breather in May. Shipments fell back 1.4% to $43.4 billion, following a 5.2% surge in April. The recent movements in shipments were fuelled by the automotive sector. Excluding both the motor vehicles and parts industries, total manufacturing shipments declined only 0.1%. Shipment levels remained strong compared with the same period of 2001.

Despite May's decline in shipments, Canada's manufacturing sector has been upbeat in 2002. Only 10 of 21 industries decreased in May, representing 49% of total shipments. Solid gains in employment, strong consumer confidence and low interest rates were key stimuli for the economy. Consumer spending remained robust compared with May 2001, as demand for housing and automobiles exceeded many analysts' expectations. As well, manufacturers continued to add to their payrolls.

Following a small rise in employment for May (+2,100), the most recent Labour Force Survey reported 30,000 new manufacturing jobs in June. Since the beginning of 2002, manufacturing employment has risen 113,000, returning employment in this industry to the peak reached in December 2000.

Seven provinces reported lower shipments in May compared with April. Only Quebec, Alberta, British Columbia and the territories increased manufacturing output in May.

Inventories remained unchanged in May, standing at $62.0 billion, following a 0.3% rise in April. Prior to this, inventories had fallen for 10 consecutive months; this was the longest string of monthly declines since the economic downturn of 1991 and 1992, when manufacturers cut back inventories over 14 consecutive months. Manufacturers' recent efforts to reduce their stocks concur with April's report of the Quarterly Business Conditions Survey. In this survey, manufacturers indicated that their inventories were under control, orders were picking up and it was time to boost production.

In addition, according to the recent release of industrial capacity utilization rates, manufacturers increased their capacity use to 80.6% in the first quarter, following five consecutive quarterly declines. This is up from 78.8% in the fourth quarter of 2001.

Motor vehicles push down shipments

Manufacturers of motor vehicles took a break in May, following exceptional production levels in April. Shipments declined 7.5% to $5.5 billion, after the 14.4% surge in April. As well, the motor vehicle parts industry decreased 4.4% to $2.7 billion, following April's 9.2% jump. Generous financial incentives coupled with low interest rates and a recovering job market contributed to higher sales of cars and trucks in Canada and lower dealer inventories in the United States.

Although factory output in the automotive sector declined in May, levels remained among the highest for the last year and a half. In recent months, several plants returned to full production from temporary shutdowns. In addition, manufacturers have stepped up production of new models for the coming year and the resumption of overtime work was prevalent at some plants.

The motor vehicle parts industry and the plastics and rubber products industry both declined in May as well, riding the coat-tails of the lower output by motor vehicle manufacturers. The parts industry decreased 4.4% from April's all-time high and shipments of plastics and rubber products fell 3.8% to $1.9 billion. Many firms in the plastics and rubber products industry supply goods for the automotive sector.

Wood product shipments fall for the first time in six months

Shipments of wood products declined 2.2% to $2.6 billion, the first decrease in six months. Shipments in April had reached the highest level since January 2000, which coincided with the temporary expiration of US softwood lumber duties from April 22 to May 21, 2002. The prices for lumber, sawmill and other wood products have also softened over the last couple of months. A gradual weakening in demand for wood products and an oversupply of lumber were factors influencing the price.

Helping to offset May's decrease were shipment gains in the petroleum and coal products industry (+4.4%) and the computer and electronic products industry (+6.0%). The recovery in manufacturing activity in 2002 and a cooler-than-normal spring gave rise to higher demand for petroleum and coal products. Shipments of computer and electronic products are up for the sixth time in seven months, although production remained well below the levels of May 2001. Despite the modest upswing in shipments of computer and electronic products, market uncertainty in the long term continues to cast shadows on this industry.

Manufacturers' inventories remain unchanged, although finished-products continue to decline

Inventories remained stable at $62 billion in May. This followed a 0.3% rise in inventories in April, the first increase in 11 months. Finished-product inventories fell 0.8% to $19.3 billion in May, the lowest level in 20 months. This was offset by higher raw materials (+0.3%) and good-in-process (+0.5%) inventories.

As the economy weakened in 2001, manufacturers struggled to lower their inventories. Despite significant production cuts, finished-product inventories remained stubbornly high through the first half of 2001, as global demand weakened and markets remained uncertain. Finished-products peaked at $20.2 billion in June 2001, and have since decreased 4.8% to $19.3 billion. April's Business Conditions Survey also reported that manufacturers were much more satisfied about their levels of finished-product inventories.

Inventories of chemical products rose 3.0% to $5.3 billion in May, the third increase in a row. As well, inventories in the motor vehicle parts industry were up 3.4% to $1.8 billion, the highest level in a year and a half.

Offsetting these increases, the computer and electronic products industry reported a sixth straight drop in inventories. Stocks fell 2.9% to $4.6 billion in May, as high-tech manufacturers continued to scale back their holdings. The aerospace products and parts industry also reported a 0.9% inventory decrease to $7.7 billion. Inventories in the aerospace products and parts industry peaked at $8.2 billion in the fall of 2001, and have been falling ever since.

May's decline in shipments, combined with stable inventories, resulted in the first increase of the inventory-to-shipment ratio since December. The ratio edged up to 1.43 from April's 18-month low of 1.41. Despite the increase, the ratio remained well below the nine-year high of 1.56 set in October 2001. Because of the economic slowdown in 2001, the ratio had increased sharply over the course of the year, as lower inventories initially did not follow the significant cuts in production. The ratio is a key measure of how long it would take to deplete inventories at the current pace of shipments.

The finished-product inventory-to-shipment ratio remained unchanged at 0.44 for the second straight month, a 15-month low. Both shipments and finished-product inventories declined in May, resulting in the stable ratio.

Unfilled orders are up for the fourth straight month

Several contract signings and a general increase in demand contributed to a 0.8% rise in unfilled orders to $47.7 billion. This was the fourth consecutive climb and the longest series of monthly increases in unfilled orders since early 2000. The transportation equipment sector (+1.0%) and the machinery industry (+1.5%) were primarily responsible for the higher orders in May.

In recent months, unfilled orders have been slowly inching upwards from their 27-month low in January ($46.2 billion). Orders peaked at $50.9 billion in November 2000, just before the latest economic downturn. The trend for unfilled orders, which had been on a downward slide right through 2001, continued to improve in May.

New orders contracted for only the second time in 2002, dropping 1.1% to $43.8 billion in May. Despite the decline, new orders have improved considerably since the start of 2002, and remain 10% above December 2001.

Available on CANSIM: tables 304-0014 and 304-0015.

The May 2002 issue of the Monthly Survey of Manufacturing (31-001-XIB, $15/$147) will be available soon.

Data for shipments by province in greater detail than normally published may be available on request.

To order data, or for general information, contact the dissemination officer (1-866-873-8789; 613-951-9497; 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.