Business Conditions Survey: Manufacturing industries

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Manufacturers are expecting tougher times ahead according to the October Business Conditions Survey, due mostly to widespread dissatisfaction with current levels of orders. As a result, manufacturers are anticipating decreasing production and employment in the coming three months.

The Business Conditions Survey is a quarterly survey that requests manufacturers 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 October and attracted almost 4,000 responses from manufacturers.

Manufacturers less optimistic about production prospects

While 16% of manufacturers stated they would increase production in the fourth quarter of 2006, another 21% expected to decrease production, leaving the balance of opinion at -5. This was a 5 point decrease from the zero balance posted in the July survey. The drop in production prospects can be attributed to declines in Ontario and Quebec, while most of the other provinces were positive. Although lower than last quarter, the current balance is slightly better than the balance of -12 posted in April of this year. Since October 2004, the production prospects balance of opinion has ranged from -12 to +8.

Lower global demand and factory prices contributed to diminished prospects in some industries, led by producers in the plastics and rubber products, primary metal, wood product and paper industries. In all, 10 of the 21 manufacturing industries contributed to the lowered balance for production prospects in the fourth quarter of 2006.

The balance of opinion was 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 new orders declines

While 10% of manufacturers stated the current level of new orders was increasing, 23% stated the level of new orders was decreasing. As a result, the October balance of opinion dropped 17 points from the July survey, to -13. This was the largest quarter-to-quarter drop in balance since a 28 point decline in the January 2001 survey. The drop in the balance was widespread as 16 of the 21 industries indicated lowered satisfaction with current levels of new orders. Producers in the primary metal, fabricated metal product, plastics and rubber products, wood product and paper industries were the major contributors to the declining balance of opinion for orders received. According to August's Monthly Survey of Manufacturing, new orders for all manufacturing industries declined 1.1% to just over $49.5 billion. The current level of new orders was below that of one year earlier ($50.6 billion).

Manufacturers express greater concern with levels of unfilled orders

The October balance of opinion concerning the current level of unfilled orders stood at -19, a 17 point decrease from the -2 posted in the July survey. Some 24% of manufacturers indicated that the current level of unfilled orders was lower than normal, while 5% claimed a higher than normal backlog. Producers in the primary metal, computer and electronic product, electrical equipment, wood product and paper industries were the major contributors to the falling unfilled orders balance of opinion. The balance of opinion for unfilled orders has not been this low since the -23 observed in April 2005. Overall, a lowered balance of opinion was posted in 17 of the 21 industries. According to August's Monthly Survey of Manufacturing, unfilled orders were down 0.8% to just over $41.0 billion following two months of minor increases (+0.2% in July and +0.4% in June).

Manufacturers slightly less concerned with finished product inventories

In October, 81% of manufacturers reported that the current level of finished product inventories was about right, down 3 points from July. Some 14% stated that inventories were too high, while 5% said inventories were too low. This left the balance of opinion at -9, a 1 point improvement over the July balance. A year earlier, in the October 2005 survey, the balance of opinion for finished product inventories had stood at -18. According to August's Monthly Survey of Manufacturing, finished product inventories levels stood at almost $21.7 billion, down 2.3% from over $22.2 billion posted one year earlier in the August 2005 survey.

Manufacturers' employment outlook down

The balance of opinion for employment prospects for the next three months decreased 3 points to -5 in October. While 65% of manufacturers stated that they would keep their current work force, 15% indicated they would increase it and 20% indicated that they expected to decrease employment in the fourth quarter of 2006. Regionally, manufacturers expected slightly lower employment levels in Ontario (balance -14) and Quebec (-8), which offset increases in Saskatchewan (+24), Alberta (+21) and British Columbia (+7) where manufacturers continued to express difficulty in finding skilled labour. According to the September Labour Force Survey, manufacturing employment has declined 3.1% so far in 2006, representing some 67,000 fewer employees.

Manufacturers report more production impediments

The number of manufacturers reporting production impediments increased 5 points to 28% in the October survey. Shortages of orders, the high value of the Canadian dollar 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 January 2007 will be released on January 29, 2007.

For general information or to order data, contact the dissemination officer (toll-free 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.

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