By Gerard Lucyshyn, Frontier Centre for Public Policy
Consumers usually realize fairly quickly just how important the manufacturing sector is when they stare at empty shelves while shopping. In some cases being confronted with an empty shelf can lead to hysteria and panic leading to irrational behaviour.
Generally, most consumers, pre-pandemic, never really had much cause to be concerned about how the Canadian manufacturing sector was doing as most often the store shelves in their local communities were full, until the outbreak of COVID-19. Lightning fast government reaction and the adoption of unprecedented restrictions that followed created a rather large impact on the Canadian manufacturing sector, and it is only now after almost three years are we seeing signs that this sector is returning to pre-pandemic levels.
It is usually the concern of economists, politicians, manufacturers and business industry to assess the health of industries in the short-to-medium time horizon. However, since the outbreak of COVID-19 and the restrictions, concerns about the health of the economy and that of industries have become front and center for most Canadians. The leading source that provides a snapshot of the values of sales and goods manufactured by the Canadian Manufacturing Sector is the Monthly Survey of Manufacturing.
Produced by Statistics Canada, the Monthly Survey of Manufacturing (MSM) covers 21 of the manufacturing industries in Canada. The survey consists of five charts that contain both historical and current data, seasonally adjusted.
The MSM is released near the middle of each month. Data collection for the survey starts approximately 7 days following the reference month. The data is collected from approximately 90% of the manufacturing establishments listed in The Business Register. The Business Register is Statistics Canada’s continuously-maintained central repository of baseline information on businesses and institutions operating in Canada.
The data for the MSM are collected by a mandatory survey of the manufacturing establishments. The manufacturing establishments are sent either an electronic or paper questionnaire or they are contacted by telephone. If the data that is requested is not available at the time of the survey, the manufacturing establishments may provide their best estimates and then later make revisions once data becomes available. After the data is collected and compiled it is reported in the MSM.
To understand and appreciate the information the survey provides a reader, it is important to understand some key definitions about seasonality, type of goods, and items being measured.
Seasonally adjusted data refers to data that has been modified to eliminate the effect of seasonal and calendar influences. A seasonal pattern in a series can obscure important features by making period-to-period movements in the data more difficult to interpret. Trend cycle estimates are data that represents a smoothed version of the seasonally adjusted data and provides information on longer-term movements.
Manufacturing industries can be classified into two broad categories based on the type of goods they produce, namely, non-durable or durable goods. Non-durable goods are any consumer goods in an economy that are either consumed in one use or used up over a short period of time (usually within three years) and then must be bought again. Industries that produce non-durable goods include: food; beverage and tobacco products; textile mills; textile product mills; clothing manufacturing; leather and allied products; paper; printing and related support activities; petroleum and coal products; chemicals; and plastics and rubber products. Durable goods are any consumer goods in the economy that are consumed over a longer period of time (usually over 3 years). Industries that produce durable goods include wood products; non-metallic mineral products; primary metals; fabricated metal products; machinery; computer and electronic products; electrical equipment, appliances and components; transportation equipment; furniture and related products; and miscellaneous manufacturing.
The MSM covers the values of manufacturing sales, inventory levels, inventory-to-sales ratio, unfilled orders, and the capacity utilization rate.
Manufacturing sales are based on the assumption that sales occurred during the reference month. However, in some industries the value of production is used instead of the values of sales because of the extended period of time that it takes to manufacture certain products, ie. aerospace and shipbuilding industries.
Inventory levels are measured as the book value of inventory normally held by the establishment. Inventory-to-sales ratio measures the time (in months) that would be required to exhaust inventories if sales were to remain at their current level.
Unfilled orders are defined as a stock of orders that will contribute to future sales, assuming that the orders are not canceled.
Lastly, capacity utilization is a measurement of how efficiently businesses, organizations and economic entities use resources to produce outputs, that is, a company’s operational efficiency.
The World Health Organization declared the COVID-19 outbreak a public health emergency of international concern on January 30, 2020. Then declared the outbreak a worldwide pandemic on March 11, 2020. While the COVID-19 and its variants continue to circulate amongst the population and cannot be declared as over, the impact on the Canadian Manufacturing sector by the government’s reactions and early restrictions can now be assessed.
Manufacturing sales were $56.4B at the end of December 2019, evaporating by 35.4% dipping down to $36.4B within four months by the end of April 2020. Inventory levels were at $87.4B at the end of December 2019 and increased marginally to $87.8 B by April 2020. Inventory-to-Sales Ratio as December 2019 had inventories-to-sales ratio of 1.55 months which by April 2020 that ratio jumped by 55.4% to 2.41 months. Unfilled Orders in December 2020 were $97.6 B increased by 1.8% by April 2020 to $99.4 B.
The largest impact was on the Canadian Manufacturing sectors Capacity Utilization Rate. In December 2019 the Capacity Utilization Rate was 76.3% by April 2020 it had plummeted down to 55.9%, this is the lowest capacity utilization rate has ever been since Statistics Canada began tracking it.
Next time you are out shopping and the shelves appear somewhat empty or your wait time for your products seems to be longer than normal, you can always take a look at the Monthly Manufacturing Survey to get an indication as to why.
Gerard Lucyshyn is an economist and an economics lecturer in the Department of Economics, Justice and Policy Studies at Mount Royal University in Calgary, Alberta.