Counting Our Ducks

Thursday, November 16th, 2006
By Inya Ivkovic, MA for Profit Confidential

We’re counting our ducks and we’re still coming up short. Although the Bank of Canada’s Governor David Dodge has said time and again this slump is only temporary, I cannot but cringe every time economic numbers come up, shall we say, lackluster?

So, let’s have a look at them–the numbers, I mean. For the month of September, Canadian manufacturing shipments slid 3.3%. Apparently, automotive and sluggish energy prices dealt the worst blows. Now, this decline was nothing surprising in and of itself. What was unexpected was the severity at which axes had swung. Economists expected a third of that decline, forecasting a drop in shipments of 1.1%.

In dollar figures, total manufacturing shipments came to C$47.9 billion, which was the lowest amount in the past two years. Broken down by sectors, 13 out of 21 manufacturing industries posted losses in September. More specifically, durable goods shipments dropped 2.5% to C$25.6 billion, while non-durable goods lost 4.2%, finishing September with C$22.2 billion. The first took a hit because of the transportation sector; the second is hurting because of lower commodity prices, particularly energy prices.

Furthermore, the overall transportation shipments dropped 2.9%. Broken down further, new car shipments dropped 8.5%, while auto-parts shipments dropped 4.5%. It is obvious that the car assembly industry is facing serious problems, including fully stocked inventories and no customers to ship the stuff to.

Canadian refineries also took a tumble, its shipments falling a worrisome 15.3%. Again, low commodity prices and packed inventories led to under-capacity manufacturing numbers. Joining the long line-up of losing sectors was also machinery manufacturing, its shipments dropping 6.2%.

Winners were few and far between, but included the aerospace segment, which saw its September orders climb 18.1%, as well as the food shipments, which rose two percent.

Broken down by provinces and territories, many of them reported drops in manufacturing shipments, led by New Brunswick and Nova Scotia. Quebec remained unchanged, while the only provinces showing progress were British Columbia and Prince Edward Island. However, their shipments increased only fractions of a percent, 0.2% and 0.1% respectively.

So, what are these numbers telling us? Well, I have a feeling the recovery that Governor David Dodge is talking about is a bit further away than he estimated. I just don’t see how packed inventories are going to empty themselves when new orders are continuously decreasing.

Also, how exactly plant capacities are going to increase when no one really wants that stuff is also a mystery. On top of that, for the first nine months of 2006, manufacturing jobs have shed 67,000 jobs, or 3.1%. So, who’s going to make the stuff that fewer customers want in factories that operate below capacity? However I look at it, these ducks will have to take much longer than mid- 2007 to line up, regardless what Mr. Dodge may say to calm the waters.

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Tags: economic analysis, market view, stock market