OTTAWA - Manufacturing sales fell six per cent to $38.4 billion in May, the lowest level in more than a decade as Canada's industrial sector was battered by output cuts linked to the restructuring of the North American car industry.
Statistics Canada reported Wednesday that plant shutdowns in the motor vehicle and primary metal industries, along with continued volatility in the aerospace sector, accounted for most of the decline in May.
Chrysler shut down its plants in May as the company emerged from bankruptcy protection, while US Steel Canada, the former Stelco, idled most of its Ontario operations to cope with a slumping market.
The agency said constant-dollar manufacturing sales fell 5.8 per cent in May, indicating that lower volumes rather than price changes were behind the decrease in sales.
Sales dropped in 17 of 21 manufacturing industries, accounting for about three-quarters of total sales.
The transportation equipment industry led the declines, falling 25.7 per cent compared with April.
Excluding the transportation equipment industry, total Canadian manufacturing sales decreased 2.1 per cent.
Motor vehicle manufacturing sales dropped 25.4 per cent on the back of several plant shutdowns. Motor vehicle parts manufacturing fell 22.2 per cent, reflecting a decrease in demand from vehicle assembly plants.
Production in the aerospace industry decreased by $781 million, reversing a similar-sized increase in April. The aerospace products and parts industry has been extremely volatile over the past several months.
Primary metal manufacturers reported a nine per cent decrease in sales for May, a reflection of plant shutdowns, lower prices and weak market demand.
Other large declines came in miscellaneous manufacturers (down 13.7 per cent), machinery manufacturers (down six), fabricated metal products (down 3.5), and food (down 2.9).
The petroleum and coal products industry was the main offsetting industry as sales rose 6.2 per cent.
The six per cent decline in manufacturing shipments was far higher than economists had expected.
"While we were expecting a larger than consensus hit to manufacturing shipments in May, we weren't expecting a six per cent decline as weakness was broad-based with a decline in autos, aerospace and primary metals shipment leading the retrenchment," said a report from Scotia Capital economists Derek Holt and Karen Cordes.
Scotia Capital said that while the May manufacturing numbers will pull down GDP for the second quarter, the faster pace of decline and an expected revival in production in the current summer quarter suggests a quicker recover in manufacturing and GDP growth.
"Look for one more month of weakness to end off Q2 before auto exports ramp up again," Holt and Cordes wrote.
"As we've argued since late last year, this return to "recovery" is largely a no brainer once inventory shedding turns to flicking the production switch back on. But a true recovery with sustained improvements in demand into 2010 is more uncertain particularly given ongoing effects of deleveraging on the U.S. consumer and the lasting effects of relative (Canadian dollar) strength."
Charmaine Buskas, senior economics strategist at TD Securities, said the report suggests continuing weakness in Canada's industrial economy going ahead. Not only are exports under pressure from a weak U.S. recovery, but a rising Canadian dollar -- up more than three cents this week alone to just over 89 cents US -- is also squeezing exprt sales south of the border.
"To the extent that the export data reported last week was so weak, the contraction in manufacturing should not be much of a surprise. "The wholesale softness in activity, across a broad cross section of industries is indicative of the deterioration in demand. This will continue to be a feature of manufacturing activity going forward as the U.S. economy continues to struggle back and the Canadian dollar remains on a firming trend."
