Business Conditions Survey: Manufacturing industries

Manufacturers were slightly more cautious in their outlook for the first quarter of 2006 compared to the fourth quarter of 2005. Fewer new orders, near record rates for capacity utilization, a strong Canadian dollar and continued competition from foreign imports were some of the challenges facing manufacturers in recent months. As a result, manufacturers do not expect to expand production in the first quarter of 2006.

Meanwhile, national employment prospects remained slightly negative for the quarter, although there were still divergences in opinions towards employment prospects expressed by manufacturers in the western provinces and those in central Canada.

The Business Conditions Survey is a quarterly survey requesting opinions on production impediments, finished product inventory levels, new and unfilled order levels, production and employment prospects in the coming three months. The voluntary survey was conducted in the first two weeks of January and attracted almost 4,000 responses from manufacturers.

Little change in manufacturers' production prospects

Some 15% of manufacturers stated they would increase production in the first quarter of 2006 while another 15% expected to decrease production, leaving the balance of opinion at zero. This was a 1 point decrease from the +1 balance posted in the October survey. The October 2005 balance was the only positive one for that year. The balance had stood at zero in both the January and April surveys and had dropped to -2 in July 2005.

Manufacturers in the primary metal, chemical, plastics and rubber products industries were the most optimistic about production prospects for the first three months of 2006. A lack of capacity continued to be an issue for some manufacturers. According to the "Industrial capacity utilization rates" release in The Daily on December 9, manufacturers operated at 86.1% of capacity in the third quarter of 2005.

The balance of opinion is determined by subtracting the proportion of manufacturers who stated production would decrease in the coming three months from the proportion who stated production would be increasing.

Satisfaction with level of orders received down slightly

Although positive for a second consecutive quarter, the balance of opinion concerning current levels of new orders dropped 3 points from the October 2005 survey to +1. This remained lower than the most recent high of +13 balance posted in the October 2004 survey. The number of manufacturers who stated that orders received were declining increased 4 points to 14% in January. Producers in the computer and electronic products industry were the major contributors to the lower balance of opinion for orders received. According to November's Monthly Survey of Manufacturing, new orders for all manufacturing industries were down 1.8% to just over $51.7 billion.

Manufacturers express concerns over levels of unfilled orders

In the January survey, 20% of manufacturers indicated they had a lower-than-normal backlog of unfilled orders compared to another 15% that had a higher-than-normal backlog. As a result, the balance of opinion concerning the current level of unfilled orders stood at -5. This was a 4 point decrease from the October survey results. Producers in the transportation equipment, and computer and electronic products industries, as well as in the primary metals and paper industries were the major contributors to the decrease in the unfilled orders balance of opinion. According to November's Monthly Survey of Manufacturing, unfilled orders picked up 0.6% to just under $42.7 billion, the highest level in almost three years.

Manufacturers slightly less concerned with finished product inventories

In January, three-quarters of manufacturers reported that the current level of finished product inventories was about right, up 7 points from the October level. Some 21% stated that inventories were too high, while 4% said inventories were too low. This left the balance of opinion at -17, a 1 point improvement over the October balance. According to November's Monthly Survey of Manufacturing, finished product inventories edged up 0.6% to almost $22 billion, the highest level since August 2005.

Overall manufacturers' employment prospects show little change despite continuing surge in Alberta

The balance of opinion for employment prospects for the next three months increased 1 point to -1 in January. While 86% of manufacturers stated that they would keep or add to their work force, 14% indicated that they expected to decrease employment in the first quarter of 2006. Regionally, manufacturers expected slightly lower employment levels in Ontario (balance -7) and Quebec (balance -5) which more than offset a red hot market in Alberta (balance +26) where manufacturers still reported difficulty in finding skilled labour. According to the December Labour Force Survey, employment in the manufacturing sector stood at 2.18 million, down 0.1% from the November level. In 2005 there were 100,000 (-4.4%) fewer people working in the manufacturing sector.

Manufacturers report fewer production impediments

The number of manufacturers reporting no production impediments increased 7 points to 81% in January. The proportion reporting a shortage of skilled labour was down 3 points in January to 6%. What had been fuelling the number was a shortage of skilled labour in Alberta. Some 19% of manufacturers in Alberta indicated they were facing skilled labour shortages, down from 42% in October. Labour Force Survey employment in Alberta's manufacturing sector stood at 129,100 in December, a 4% increase from October. Producers reporting other production impediments decreased 2 points to 3% in January. Comments in this category continued to relate to impediments caused by the high value of the Canadian dollar and competition with cheap foreign imports.

Available on CANSIM: tables 302-0007 and 302-0008.

Definitions, data sources and methods: survey number 2152.

Business Conditions Survey data for April 2006 will be released on April 27.

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 Claude Robillard (613-951-3507; (claude.robillard@statcan.gc.ca), Manufacturing, Construction and Energy Division.