The Conference Board of Canada’s economist Cory Renner offers the following insights on November’s Monthly Survey of Manufacturing:
Increasing COVID-19 case counts in the fall have begun to affect the broader economy. Manufacturing sales slowed by 0.6 per cent in November, the second consecutive decline. While only a minor decline, more restrictions through December and January should further restrict economic activity, and thus manufacturing output. The biggest concern from this release is the weakness in transportation equipment manufacturing, which recovered to pre-pandemic levels in the summer, but has struggled mightily since. As a key industry in Canada, its recovery will be important for our broader economy.
- Real manufacturing sales declined by 0.6 per cent, the second consecutive monthly decline.
- November’s manufacturing sales were at 96 per cent of pre-pandemic levels. With more lockdowns extended through December and January, it’s likely the case that manufacturing sales will see further declines.
- Sales were particularly weak in Ontario (–0.8 per cent) and British Columbia (–4.2 per cent). Sales also declined in Nova Scotia (–6.2 per cent), P.E.I. (–3.8 per cent), Newfoundland and Labrador (–1.4 per cent) and Manitoba (–1.8 per cent).
- On the positive side, manufacturing sales rose in Alberta (+1.3 per cent), Saskatchewan (+0.8 per cent) and New Brunswick (+5.0 per cent). Quebec was stable (+0.1 per cent).
- The recovery from pre-pandemic levels differs greatly between provinces. New Brunswick (106 per cent of pre-pandemic levels) and British Columbia (104 per cent) have had the strongest recoveries. Meanwhile, Newfoundland and Labrador (48 per cent) and Alberta (89 per cent) are furthest from recovery.
- On the positive side, industries related to the pandemic such as chemical manufacturing (+1.6 per cent), plastics and rubber manufacturing (+2.1 per cent) each grew in November.
- The decline was most pronounced in the transportation segment, which declined by 8.5 per cent (in real terms). Manufacturing sales of autos were down 5.4 per cent, while sales of aerospace products and parts were down 22.5 per cent.
- A longer-term decline in sales of transportation equipment is troublesome for Canada’s economy. The sector accounts for 15 per cent of total manufacturing sales and is largely dependent on commuter and air travel.
- Airlines have drastically cut flights in response to travel restrictions. This reduces the hours flown on many airplanes and thus increases the lifecycle of their fleet, which could weigh on aerospace manufacturing.
- While we do expect a resurgence in travel once a vaccine becomes available, it will be some time before the air transportation industry fully recovers, which means less demand for airplanes and the related parts.
- Similarly, the increased uptake of remote work likely has some negative implications for automotive and parts manufacturing, as well as commuter buses and trains. With more people working from home, many households will have drastically reduced the miles put on their car—naturally extending the car’s life.
- If working remotely becomes more common on a permanent basis, there’s likely to be less demand for commuter vehicles more generally.
- Given the decline in output, capacity utilization rates declined slightly to 77.7 per cent in November. Low-capacity utilization is concerning, given Canada has struggled to attract investment in recent years, and high-capacity utilization means there is lots of excess space around.
- It should be noted that capacity utilization rates vary significantly by industry—from 87.5 per cent for clothing manufacturers to 72.7 per cent for beverage and tobacco manufacturers.