Monthly Survey of Manufacturing

A sharp decline in the motor vehicle and parts industries was behind a 0.9% decrease in manufacturing shipments in December. Shipments fell to $43.0 billion, a nine-month low.

Although shipments were down for the third consecutive month, December's decline was highly concentrated in the transportation equipment sector. Excluding the motor vehicles and parts industries, manufacturing shipments advanced a solid 1.3%. Only 9 of the 21 manufacturing industries representing 43% of total shipments reported decreases in December.

On a more negative note, finished-product inventories edged up 0.1%, marking the fifth consecutive rise. This also represented the longest string of monthly increases in finished-product inventories since the previous build-up of stocks in 2000.

Unfilled orders and new orders were also down in December, contributing to a weak fourth quarter.

Rising inventories and lower orders were in line with the guarded mood of manufacturers, as seen in January's quarterly Business Conditions Survey. Although opinions on production prospects improved slightly, many producers indicated lower satisfaction with the levels of new and unfilled orders for the first quarter of 2003. Orders have been trending down throughout the fall of 2002.

Following a hiring spree, manufacturing employment slips in recent months

Manufacturers continued to shed jobs in December (-24,700) and January (-14,600), as reported by the most recent Labour Force Survey. Employment levels fell in four of the last five months, with job losses of 38,000 (-1.6%) in manufacturing since August. Despite the recent decline, Canadian manufacturers created 109,000 new jobs (+4.9%) in 2002.

Most provinces report higher shipments in December

Only three provinces and the territories reported lower shipments in December, although the sharp reduction in Ontario's motor vehicle and parts industries dominated at the national level. Shipments in Ontario fell $701.6 million (-3.0%), by far the largest drop among the provinces. Nova Scotia and Newfoundland and Labrador also edged down in December.

New Brunswick and Quebec led the majority of provinces that reported stronger shipments in December.

US shipments fall as inventories rise

Shipments in the United States fell back 0.6% in December, following a 1.1% drop in November. As in Canada, the transportation equipment sector was responsible for the decline.

US manufacturing inventories rose 0.5% in December, partly the result of a 1.0% increase in stocks of durable goods. This was the first rise in durable goods inventories since January 2001.

Motor vehicles and parts pull down shipments in Canada

Despite a strong start to 2002, the motor vehicle industry did not end the year on a positive note. Shipments plunged 11.1% to $4.7 billion in December, the fifth consecutive decline. In addition to the usual seasonal shutdowns at various assembly plants, some manufacturers extended plant closures by a few weeks, in an effort to reduce inventories.

Throughout 2002, low interest rates and attractive financing incentives contributed to strong consumer demand for new motor vehicles in North America. Uncertainty regarding the sustainability of that demand in the new year contributed to the slowdown of the motor vehicle manufacturing in the fourth quarter of 2002.

Concerns with rising inventory levels and the recent slowdown in motor vehicle manufacturing contributed to a 9.8% drop in shipments of motor vehicle parts in December. Shipments fell to $2.5 billion, the third decline in four months and the largest monthly decrease in shipments in two years.

Big boost in shipments of petroleum and coal products

Partly offsetting the overall decrease in total shipments in December, shipments of petroleum and coal products increased 8.2% to $3.1 billion, wiping out November's 6.8% decrease. The increase in shipment activity this month was due to manufacturers' intent to replenish inventories and the return to full production by some refineries that were temporarily shut-down for maintenance in November.

The threat of war in Iraq and the general strike in Venezuela have contributed to considerable volatility in prices and production levels in recent months. Although petroleum and coal product prices remained relatively flat in December (-0.1%), prices were up significantly (+24.5%) from December 2001.

Also up this month were shipments of chemical products, which advanced 4.1% to $3.4 billion, the fourth increase in five months. As well, the booming housing market contributed to a 7.6% rise in the shipments of furniture and related products. Shipments hit $1.1 billion in December, the highest level in two years.

Manufacturers' inventories continue to accumulate

Manufacturers' inventories rose 0.4% to $63.4 billion in December. Inventories have been gradually accumulating since July, and are now at a 15-month high.

December's increase was concentrated in raw materials inventories, which jumped 0.9% to $27.6 billion. Finished-product inventories edged up 0.1% to $19.7 billion. Although the increase was negligible, it was the fifth consecutive rise for finished products; this may be a sign of slowing demand. December's finished-product inventories were up 4.9% from July's recent low of $18.8 billion.

Inventories of petroleum and coal products soared 8.2% to $1.6 billion in December, as manufacturers worked on replenishing depleted stocks. The motor vehicles (+4.4%) and the motor vehicle parts (+3.9%) industries also reported higher inventories in December.

The inventory-to-shipment ratio hits a nine-month high

The inventory-to-shipment ratio rose to 1.47 in December, up from 1.45 in November. Mounting inventories and a sharp decline in shipments boosted the inventory-to-shipment ratio to the highest level since March. Before the recent run up, the ratio had remained relatively stable since April, as manufacturers controlled their inventory levels and shipments grew moderately.

The finished-products inventory-to-shipment ratio continued to edge up in December, rising to 0.46 from 0.45 in November, the highest level since March. The ratio is a measure of the time that would be required in order to exhaust finished-product inventories if shipments were to remain at their current level.

Unfilled orders weaken for the fourth month in a row

Following a steady decline since September, unfilled orders fell back a further 1.1% to $46.0 billion in December. Orders were at the lowest level in over three years.

The decline in unfilled orders in the fourth quarter of 2002 concurs with manufacturers' concerns noted in January's quarterly Business Conditions Survey. Some 20% of manufacturers indicated that the level of unfilled orders was lower than normal, up from 18% in the October report.

Industries of the transportation equipment sector (-1.2%) were largely responsible for the lower reported unfilled orders in December. Some manufacturers noted fewer new orders to replace completed contracts in recent months. Unfilled orders were also down in the fabricated metal products (-4.5%) and the primary metals (-5.5%) industries.

New orders fell back 1.6% to $42.5 billion in December, following a 1.3% drop in November. Fewer new orders in the motor vehicles and parts industries contributed to the third drop in the last four months.

Manufacturers turn the corner in 2002 

Unprecedented demand for motor vehicles in North America, coupled with a generally strong domestic economy, contributed to the turnaround by Canadian manufacturers. Shipments rose 1.9% to $518.8 billion in 2002, following a 5.2% decline in 2001.

Notwithstanding the increase in shipments in 2002, the year ended on a less positive note as manufacturers cut back production levels in recent months due to a gradual build-up of inventories. Total inventories, which had been in decline earlier in 2002, ended the year up 1.4% from December 2001.

Unfilled orders have also been decelerating in the second half of the year. Orders were down 1.9% in December 2002 from the December 2001.

Consumers' role important

Consumers played a large part in the resilience of the Canadian manufacturing sector in 2002. Following the downturn of 2001, stellar growth in employment, near-record lows in interest rates and higher incomes contributed to strong demand for new homes and automobiles. As a result, 14 of 21 manufacturing industries representing 84% of total shipments reported increases in 2002.

Shipments of motor vehicles led all industries in 2002, rising 5.7% for the year. Manufacturers made up some of the ground lost in 2001 when the industry turned down by 14.8%. The strength of the motor vehicle industry also benefited the manufacturers of motor vehicle parts, where shipments expanded 10.2% for the year.

Also up significantly in 2002 were shipments of the primary metals (+8.6%) and wood products (+7.1%).

Faltering demand lowers shipments of computers and airplanes in 2002

The year 2002 was not without losses. After the high-tech meltdown of 2001, shipments of the beleaguered computer and electronic products industry fell an additional 16.4% in 2002, following deep cuts of 32.2% in 2001. Market uncertainty and weak global demand continued to plague the industry.

Canada's aerospace products and parts manufacturers were adversely affected by the slowdown of the global aviation sector. Shipments of aerospace products and parts decreased 15.1% in 2002, as new orders dried up.

The auto industry drives Ontario

Ontario, Canada's key manufacturing province, made strong gains in 2002 compared with 2001. Shipments recovered 3.4% following a 6.4% drop in 2001. Contributing strongly to the increase were the motor vehicles and parts industries.

In Quebec, lower shipments by the computer and aerospace industries were not enough to offset a 0.9% advance in manufacturing shipments for 2002. Primary metals and wood products were among several industries reporting higher shipments in the province.

An increase of 3.7% in New Brunswick led the Atlantic provinces in terms of annual shipments in 2002. Prince Edward Island (+9.6%), Nova Scotia (+1.3%) and Newfoundland and Labrador (+1.7%) were up as well.

Manufacturing activity weakens in Alberta

In Western Canada, all provinces except Alberta reported higher manufacturing output in 2002.

Manufacturers in Alberta reported a 3.2% decrease in shipments in 2002. The continuing downfall of the high-tech sector, the devastating drought, higher costs for electricity, and lower petroleum and coal product prices earlier in the year were factors in the decrease. Declines in the computer and electronic products and machinery industries, as well as the chemical industry contributed to the overall drop in shipments for 2002.

British Columbia's resource-based economy, hit hard in 2001 (-9.7%), edged up slightly in 2002 as shipments increased 0.3%. British Columbia's wood products industry posted strong shipment gains following the reinstatement of the US tariffs on Canadian softwood lumber exports in May. The non-metallic mineral products industry also contributed to the higher output in 2002.

Manitoba (+0.5%) and Saskatchewan (+1.4%) both reported increased shipments in 2002. Improvements in the food, machinery and furniture boosted Manitoba's output for the year. Increases in Saskatchewan's wood products and transportation equipment industries offset a sharp decline in the electrical equipment, appliance and component industry.

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

Information on methods and data quality available in the Integrated Meta Data Base: survey number 2101.

The December 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.

All data are benchmarked to the 1998 Annual Survey of Manufactures.

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.