Business Conditions Survey: Manufacturing industries

Manufacturers remained resilient in their outlook for the third quarter — despite the Canadian dollar reaching levels not seen in almost three decades and increasing oil prices. A modest improvement in the level of new orders and declining finished product inventories, saw manufacturers slightly more positive about production and employment prospects for the third quarter.

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 July and attracted almost 4,000 responses from manufacturers.

Fewer manufacturers expect to decrease production

While 20% of manufacturers stated they would increase production in the third quarter of 2006 another 20% expected to decrease production, leaving the balance of opinion at zero. This was a 12 point improvement from the -12 balance posted in the April survey. Although improving, the current balance is still lower than the most positive recent balance of +11 posted in the October 2004 survey.

Strong global demand and soaring prices also contributed to the improved prospects anticipated in some industries. During the first five months of 2006, manufacturers' shipments of petroleum products were up 11.8% compared to the same period in 2005, while shipments in the primary metals industry soared 13.4%.

Manufacturers in the petroleum and coal products, transportation equipment, primary metal and chemical industries were the major contributors to the improved production prospects for the third quarter 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 June 12, 2006, manufacturers operated at 84.1% of capacity in the first quarter of 2006.

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 on the rise

With 18% of manufacturers stating the current level of new orders was increasing, and 14% stating the level of new orders was decreasing, the July balance of opinion climbed 8 points from the April survey to +4. Although the balance remained lower than the most recent high of +13 posted in the October 2004 survey, it was an improvement nonetheless. Producers in the petroleum and coal products, transportation equipment and electrical equipment, appliance and component industries were the major contributors to the improved balance of opinion for orders received. According to May's Monthly Survey of Manufacturing, new orders for all manufacturing industries were up 0.7% to just over $50.6 billion. The current level of new orders was still below that of one year earlier ($51.1 billion).

Manufacturers express fewer concerns with levels of unfilled orders

With 11% of manufacturers expressing a lower-than-normal backlog and 8% stating a higher-than-normal backlog, the July balance of opinion concerning the current level of unfilled orders stood at -3, a 3 point improvement over the -6 posted in the April survey. Producers in the computer and electronic products industries, in addition to the electrical equipment, appliance and component and primary metal industries were the major contributors to the improved unfilled orders balance of opinion. According to May's Monthly Survey of Manufacturing unfilled orders were down 0.7% to just over $42.4 billion, the second decrease in a row.

Manufacturers continue to be less concerned with finished product inventories

In July, 84% of manufacturers reported that the current level of finished product inventories was about right, up 1 point from April. Some 13% stated that inventories were too high, while 3% said inventories were too low. This left the balance of opinion at -10, a 4 point improvement over the April balance. A year earlier, in the July 2005 survey, the balance of opinion for finished product inventories stood at -24. According to May's Monthly Survey of Manufacturing, finished product inventories levels stood at almost $21.9 billion, down 1.3% from the January 2006 high of almost $22.2 billion.

Manufacturers' employment outlook up slightly

The balance of opinion for employment prospects for the next three months increased 2 points to -1 in July. While 83% of manufacturers stated that they would keep or add to their work force, 16% indicated that they expected to decrease employment in the third quarter of 2006. Nationally, a balance at this level would indicate little change in manufacturing employment in the coming three months. Regionally, manufacturers expected slightly lower employment levels in Ontario (balance -5) and Quebec (balance -9), which more than offset Manitoba (+13), Saskatchewan (+22), Alberta (+24) and British Columbia (+6), where manufacturers continued to express difficulty in finding skilled labour. According to the Labour Force Survey, although little changed in June, employment in manufacturing has declined by 8.5% (-199,000) since the end of 2002.

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

Manufacturers report more production impediments

The number of manufacturers reporting production impediments increased 2 points to 23% in the July 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 October will be released on October 26.

For general information or to order data, contact the dissemination officer (613-951-9497 or toll-free 1-866-873-8789; 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.