Slumping auto sector makes manufacturing trends tough to call

OTTAWA — Canadian manufacturing shipments continue to be erratic as the volatile motor vehicles and parts industries pulled down total shipments, despite strength in several resource-based industries.

According to Statistics Canada, shipments declined 0.7 percent in January to $51.8 billion, following a 1.8 percent advance in December. A substantial drop in motor vehicles and parts manufacturing largely contributed to January’s weakness, says Stats Can. Excluding the motor vehicles and parts industries, shipments actually edged up by 0.3 percent.

After a Dec surge, auto sector drags down total shipments

Over the past 18 months, “the manufacturing sector has experienced considerable volatility as some key industries struggled, while strong global demand fuelled expansion in other industries,” mainly the energy sector, the report states. “This has also generated some significant disparity across the country in terms of shipment activity.”

January’s decline was not widespread as only 7 of the 21 manufacturing industries reported lower shipments, although these industries accounted for just over one-half of the value of total shipments.

Although seven provinces posted decreases in January, auto manufacturing-dependant Ontario (-$554 million or -2.1%) was the hardest hit of the lot, according to the report. Sustained strength among Quebec’s manufacturers (+$146 million or +1.2%) and a big bounce-back in Manitoba (+$103 million or +9.8%) following a weak December, partly offset the decline overall.

In January, temporary plant closures and production slowdowns at some factories contributed to declines in the manufacturing of motor vehicles and parts. Shipments of motor vehicles tumbled by 4.6 percent to $5.4 billion, the third decrease in a row. Meanwhile, manufacturers of motor vehicle parts lost most of the substantial gains of December as shipments fell 7.6 percent to $2.6 billion.

“Soaring gas prices, fickle consumers and lagging sales, despite tempting retail incentives,” were among several factors contributing to vehicle manufacturing’s slip.

Still, booming global demand and soaring industrial prices fuelled a 4.8 percent jump in shipments of primary metals to $4.2 billion in January.

Only 7 of 21 manufacturing industries reported lower shipments Jan

Above-average temperatures this winter have contributed to a longer construction season in North America, and consequently a rise in the price of lumber products (1.6%). Shipments of wood products rose 1.8 percent to $3.0 billion in January, the highest level since May 2005.

Inventories/shipment ratio:

Manufacturers’ inventories continued to accumulate in January, rising 0.3 percent to $66.3 billion at month’s end. Inventories have been on a gradual rise for about two years, says Stats Can.

Meanwhile, January’s drop in shipments contributed to an up-tick in the inventory-to-shipment ratio. The ratio edged up to 1.28 from 1.27 in December. The volatility of shipments in recent months has also contributed to some flux in the ratio.

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, the report explains.

Backlogs:

Unfilled orders rose 1.0 percent to $43.2 billion in January, the fourth successive increase. As a result, the backlog of unfilled orders stood at the highest level since November 2002 ($43.3 billion), and has risen 11.5 percent compared to January 2005.

New orders steady:

Following a surge in December, manufacturers’ level of new orders remained stable at $52.2 billion in January. Extensive decreases in the transportation equipment sector offset advances in new orders for fabricated metals products, primary metals and machinery.