Business Conditions Survey: Manufacturing industries

Manufacturers are expecting tougher times ahead according to the April Business Conditions Survey, due in part to dissatisfaction with the current level of orders, the effects of the higher Canadian dollar and substantial increases in the price of crude oil and other raw material inputs. As a result, manufacturers are anticipating lower production and employment levels in the coming three months.

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 April and attracted almost 4,000 responses from manufacturers.

Manufacturers less optimistic about production prospects

While 14% of manufacturers stated they would increase production in the second quarter of 2006 another 27% expected to decrease production, leaving the balance of opinion at -13. This was a 12 point decrease from the -1 balance posted in the January survey. This represents the most negative balance of opinion since January 2001 when the balance stood at -23. The most positive recent balance of opinion was +11 posted in the October 2004 survey.

Manufacturers in the transportation equipment, primary metal, chemical, plastics and rubber products industries were the major contributors to the lower production prospects in the second quarter of 2006. A lack of capacity continued to be an issue for some manufacturers. According to the Industrial Capacity Utilization Rates, manufacturers operated at 84.7% of capacity in the fourth quarter of 2005.

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

Satisfaction with level of orders received down

In April, the balance of opinion concerning current levels of new orders dropped 5 points from the January survey to -5. This remained lower than the most recent high of +13 posted in the October 2004 survey. The number of manufacturers who stated that orders received were declining increased 5 points to 20% in April. Producers in the transportation equipment industry were the major contributors to the lower balance of opinion for orders received. According to February's Monthly Survey of Manufacturing, new orders for all manufacturing industries were down 2.1% to just over $51.1 billion.

Manufacturers express more concerns with levels of unfilled orders

With 22% of manufacturers expressing a lower-than-normal backlog and 12% stating a higher-than-normal backlog, the balance of opinion concerning the current level of unfilled orders stood at -10. Although this was down 4 points from what was reported in the January survey, it remains higher than the -23 registered in the April 2005 survey. Producers in the computer and electronic products industries, in addition to the chemical, plastics and rubber products industries, were the major contributors to the decreasing unfilled orders balance of opinion. According to February's Monthly Survey of Manufacturing, unfilled orders picked up 1.0% to just over $43.4 billion, the fifth increase in a row.

Manufacturers remain less concerned with finished product inventories

In April, 83% of manufacturers reported that the current level of finished product inventories was about right, up 6 points from the January level. Some 15% stated that inventories were too high, while only 1% said inventories were too low. This left the balance of opinion at -14, a 3 point improvement over the January balance. According to February's Monthly Survey of Manufacturing, finished product inventories edged up 0.2% to almost $22.3 billion.

Except for the data on production difficulties, data in this release are seasonally adjusted.

Manufacturers' employment outlook down slightly

The balance of opinion for employment prospects for the next three months decreased 1 point to -2 in April. While 84% of manufacturers stated that they would keep or add to their work force, 15% indicated that they expected to decrease employment in the second quarter of 2006. Regionally, manufacturers expected slightly lower employment levels in Ontario (balance -7) and Quebec (balance -7), which more than offset by gains in Manitoba (+21), Saskatchewan (+8), Alberta (+10) and British Columbia (+9) — where manufacturers still expressed difficulty in finding skilled labour. According to the March Labour Force Survey, employment in the manufacturing sector stood at 2.13 million, down 0.6% from the February level. Since the end of 2002, employment in manufacturing has fallen by 8.2%, with 189,000 fewer people working in this industry.

Manufacturers report more production impediments

The number of manufacturers reporting production impediments increased 2 points to 21% in the April survey. The appreciation of the Canadian dollar, higher raw material costs and labour shortages in the western provinces were among the factors cited.

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

Definitions, data sources and methods: survey number 2152.

Business Conditions Survey data for July 2006 will be released on July 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.