Monthly Survey of Manufacturing

Large declines in petroleum prices and continued volatility in the auto sector were the driving forces behind the 1.5% drop in manufacturing shipments ($51.4 billion) in November. New orders also decreased a sharp 1.8%, due to weakness in the transportation equipment sector.

At 1997 prices, total shipments fell 0.8% to $47.5 billion, as some manufacturers have cut production levels in recent months. This was the third decline in constant dollar shipments in the last five months.

Petroleum prices tumble

In November, gasoline and fuel oil prices took a dive from record levels as refineries along the US Gulf Coast came back online following extensive production disruptions caused by the 2005 hurricane season.

An 8.7% decline in the price of petroleum and coal products at the factory gate, coupled with production slowdowns due to maintenance at some plants, reduced petroleum shipments by 10.8% to $4.5 billion. Excluding the price-influenced petroleum industry, total manufacturing shipments decreased by a more modest 0.6%.

Volatility persists in motor vehicle manufacturing

Shipments of motor vehicles fell 5.1% to $5.9 billion in November. Recent volatility in the auto sector has made 2005 motor vehicle manufacturing unpredictable.

Soaring gas prices, intense competition from foreign automakers and fickle consumer demand, in addition to retail incentives which seem to drive the sales of some models, have all contributed to some significant monthly fluctuations in motor vehicle production.

November's decline in motor vehicle manufacturing largely offset a surge in shipments in October (+8.0%), which was partly driven by the rush to supply showrooms with 2006 models. The trend for motor vehicle shipments has weakened significantly in recent months.

Other industries reporting decreases in November included chemical products (-6.5%) and motor vehicle parts (-5.7%) manufacturing. Partly counterbalancing the overall decrease, shipments of primary metals surged 7.0% to $4.1 billion, due to strong global demand and rising industrial prices for primary metal products.

Despite the drop in shipments, most industries post increases

Only 8 of the 21 manufacturing industries reported lower shipments in November, but among the 8 were some of the largest, accounting for 50.6% of the total.

Lower petroleum prices weakened shipments of non-durable goods by 2.9% to $22.3 billion. Meanwhile, big-ticket, durable goods manufacturers reported a 0.4% decline in shipments to $29.1 billion, the sixth decrease in 2005.

Higher shipments in most provinces

The majority of provinces and the territories posted higher shipments in November with Alberta (+$68 million) and British Columbia (+$65 million) as the primary movers. Only three provinces reported lower shipments, but the big players were among them, notably Ontario and Quebec, which comprise three-quarters of the total value of Canadian shipments.

Shipments in Ontario dropped by $807 million (-3.0%) to $25.9 billion, due to declines in the motor vehicle and parts industries, as well as petroleum and chemical manufacturing.

Also on the downside in November, shipments in New Brunswick fell by $159 million (-11.7%) to $1.2 billion, while Quebec's petroleum and chemical products industries contributed to a $98 million (-0.8%) decrease, the first in three months.

Manufacturers receive fewer new orders

Following a strong October (+2.2%), notably fewer new orders were received by manufacturers in November. New orders fell 1.8% to $51.7 billion, due to substantial decreases in the transportation equipment sector. Excluding transportation equipment, orders edged down by a modest 0.2%.

Decreases in the aerospace (-29.1%), motor vehicles (-3.8%) and the motor vehicle parts (-6.1%) contributed to the decline, counterbalancing the strength in primary metals (+8.0%) and machinery (+7.2%).

Upswing in unfilled orders continues

Although new orders abated substantially in November, manufacturers posted the highest level of unfilled orders in almost three years. Unfilled orders climbed another 0.6% to $42.7 billion, the ninth increase so far in 2005, and now stand at 16% above levels of one year ago.

The growing backlog of orders may be considered a positive sign, but it may also be an indication of the lack of additional production capacity in Canada's manufacturing sector. According to the latest release of industrial capacity utilization rates, the rebound in exports, especially the strong gain in exports of automobile products, fuelled a boost in capacity use in the manufacturing sector to 86.9% in the third quarter of 2005, edging ever closer to a record high use.

November's gain in unfilled orders was wide ranging with increases reported by the computer (+3.2%), primary metals (+3.7%) and machinery (+1.2%) industries. Slightly offsetting the rise, manufacturers of railroad rolling stock registered a 4.1% decrease, as the industry continued to work through several contracts received earlier in the year.

Inventories continue to build

Manufacturers' inventories, which have been on a steady rise over the last two years, advanced another 0.6% to $66.2 billion in November. Since December 2003 ($58.5 billion), inventories have grown by $7.7 billion (+13.1%) in value.

In November, sizeable gains in goods-in-process (+1.3%) and finished products (+0.6%) contributed to the overall rise in inventories. Inventories of raw materials also edged up by 0.3% to $28.7 billion, rounding out the three stages of fabrication.

The main contributors to the increase in inventories included the petroleum (+9.1%) and machinery (+2.2%) industries. Strong demand for copper, steel products, and other primary metals contributed to a 2.0% drop in inventories of primary metals, partly offsetting the overall rise in total inventories.

The inventory-to-shipment ratio on the rise again

The inventory-to-shipment ratio jumped to 1.29 in November from 1.26 in October. Substantially weaker shipment activity led to the sharp rise in the ratio, which remained just below the year-high of 1.31 set in July.

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.

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

Definitions, data sources and methods: survey number 2101.

All data are benchmarked to the 2001 Annual Survey of Manufactures.

Data from the December Monthly Survey of Manufacturing will be released on February 16.

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.