Monthly Survey of Manufacturing

Manufacturers cruised through June, posting record-high shipments of $49.9 billion, up 1.5% from May. A build-up of inventories, coupled with rising new orders rounded out the upbeat month.

Widespread increases

June's increase in shipments was widespread; 15 of 21 industries, accounting for a healthy 82% of total shipments, were up. June also marked the seventh consecutive advance in shipments, the longest string of gains since eight months were reported during 1998/99.

Although soaring prices for crude oil and various primary metals have contributed to strong shipment gains in recent months, June's increase went beyond the price effect. Big-ticket industries such as motor vehicles, aerospace and machinery, contributed to a 2.0% hike in durable goods manufacturing to $28.6 billion in June, the highest level since the boom period of 2000. Shipments of nondurable goods were also up by 0.8%, following May's price-inflated jump of 2.3%.

Manufacturers setting a strong pace in 2004

Manufacturing shipments have rebounded 6.1% in the first six months of 2004, compared with the same period in 2003. Despite the strong gains, Canadian manufacturers still have some room to catch up to their southern neighbours. Year-to-date shipments in the United States are up 10.6% compared with last year.

Meanwhile, manufacturing prospects should remain positive for the upcoming quarter, according to the Business Conditions Survey for July. Manufacturers indicated that both production and employment prospects in the third quarter were higher and satisfaction with the current levels of unfilled orders and orders received was positive.

There are uncertainties on the horizon, which may curb some of the manufacturers' short-term prospects. As the summer progresses, energy costs remain a key issue, while escalating global demand for steel products and other inputs has pushed these costs to recent highs.

Canada's largest manufacturing provinces report big gains

Ontario and Quebec led the six provinces reporting higher shipments in June. Shipments in Ontario increased for the fifth month in a row, up $388 million (+1.5%) to $26.2 billion. Wide-ranging gains were reported including primary metals, petroleum and fabricated metal products.

Quebec manufacturers recovered strongly in June, following May's first decrease in shipments (-1.6%) since November 2003. Aerospace and petroleum manufacturing contributed to a $332 million (+2.9%) rise in shipments to $11.7 billion, the sixth gain in the last seven months.

Shipments in Alberta also bounced back from a 3.5% drop in May, their first decrease in 11 months. June shipments rose by $137 million (+3.3%) to $4.3 billion as a result of the petroleum and chemical products industries. Year-to-date shipments in Alberta are 7.8% above the same period in 2003.

Factory payrolls show some improvement

Following an extended period of little change in manufacturing employment that began during the fall of 2003, manufacturers boosted their employment levels by 21,000 jobs in July, the first significant rise in more than a year. Employment in June fell back by 12,000.

Durable goods manufacturing dominate in June

Manufacturers of motor vehicles reported a 2.7% jump in shipments to $6.2 billion. June's increase marked the fourth consecutive rise in shipments and the highest level in almost one year. During the first six months of 2004, shipments were on par with the same period in 2003 (+0.2%). Despite sky-high petroleum prices, demand for Canadian-manufactured models by US consumers has remained strong, enhanced by attractive financing options and some of the best-ever buying incentives.

In June, the aerospace products and parts industry reported production of $1.2 billion (+13.6%), regaining all that was lost in May (-11.8%). The industry has made huge strides in 2004, following a three-year slump in air travel and the recent restructuring of several airlines. Production levels from January to June are up 11.2% over the same period in 2003.

Also reporting higher shipments in June were the primary metals (+3.2%), machinery (+4.7%) and computer (+5.1%) industries.

Strong demand translates into higher inventories

Robust global demand has been fuelling the recent build-up in manufacturing inventories. Inventories rose 0.6% to $60.5 billion, the sixth increase in a row and the highest level of inventories since May 2003. The trend has been positive throughout 2004.

A continuing sense of confidence in the economy has contributed to a recent accumulation in raw materials inventories. Inventories of raw materials rose 1.2% to $26.5 billion, a positive sign of anticipated production.

Finished-products inventories also surged 0.5% in June, the third consecutive rise. Meanwhile, goods-in-process inventories edged down 0.5% to $13.4 billion, the first reduction since March.

The main contributors to the higher inventories include the primary metals (+2.6%), fabricated metal products (+2.9%) and chemical products (+1.4%) industries.

Record low for the inventory-to-shipment ratio

Although manufacturers' have been re-stocking their inventory since the start of the year, shipment activity has outpaced the rise in inventories, contributing to record-low levels for the inventory-to-shipment ratio. In June, the ratio edged back to 1.21, following three consecutive months at 1.22. This marked the lowest level of the ratio since the start of the current series in 1992.

Canada's ratio is in line with that of the United States where the ongoing expansion in manufacturing contributed to a ratio of 1.23 in June.

The finished-products inventory-to-shipment ratio also slipped back to 0.41 in June, the lowest level for the ratio since mid-2000. The 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.

Manufacturers secure more new orders

Following May's brief setback (-0.9%), manufacturers' new orders resumed their climb in June, rising a strong 1.7% to $50.0 billion. Orders are up an impressive 13% since November's recent low of $44.2 billion.

Computer and electronic products manufacturing led all industries with a surge in new orders of 14.6% in June. The beleaguered industry has been gradually turning around in recent months. The primary metals (+5.0%) and motor vehicles (+1.4%) industries also bolstered their order books in June.

Manufacturers add to their backlog of unfilled orders

Unfilled orders edged up 0.3% to $37.4 billion in June. Strong gains reported by the computer (+4.6%) and primary metals (+5.2%) industries were largely offset by a decrease in the backlog of orders for the aerospace industry (-3.3%). Excluding the aerospace products and parts industry, unfilled orders were up a robust 2.0%.

As the global economy has continued to improve, Canadian manufacturers have become beneficiaries. Unfilled orders are up almost 7.0% compared with levels at the end of 2003. In addition, the most recent Business Conditions Survey for July indicated that manufacturers' satisfaction with unfilled orders was at the highest in four years.

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

Definitions, data sources and methods: survey number 2101.

The June 2004 issue of the Monthly Survey of Manufacturing (31-001-XIE, $17/$158) will soon be available.

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

The Annual Survey of Manufactures (ASM) released estimates for reference year 2002 and revisions for 2000 and 2001 on June 16, 2004. In the future, the Monthly Survey of Manufacturing will re-benchmark to the ASM data for reference years 2000 and 2001 and benchmark to 2002.

Data from the July 2004 Monthly Survey of Manufacturing will be released on September 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.