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Tuesday April 10, 2018

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Manufacturing: The year 2017 in review

Canadian manufacturing sales increased by $36.4 billion or 5.9% from 2016 to $648.9 billion in 2017. This was the largest increase since 2011, and it follows a 1.2% rise in sales in 2016. The growth was led by the non-durable goods industries, particularly in the petroleum and coal products and the food manufacturing industries. The study was compiled by Statistics Canada.

Sales rose in every province and in 17 of 21 industries. The growth was partially offset by declines in sales from the transportation equipment manufacturing industry, especially motor vehicle manufacturing.

In constant dollars, sales were up 3.3%. The increase was the largest annual gain since 2010. Constant dollar manufacturing sales reached their highest level since 2007.

According to the Industrial Product Price Index, prices in the manufacturing sector increased 3.2% in 2017 compared with 2016, led by a gain of 13.4% in the petroleum and coal product industry.

Strong growth in non-durable goods industries

Following an increase of 0.2% in 2016, sales in non-durable goods industries grew 8.2% or $23.3 billion in 2017, to $306.2 billion. Sales were up in 9 of 11 non-durable goods manufacturing industries. In constant dollars, non-durable goods industries sales volumes were up 4.4%.

Higher prices were primarily responsible for pushing petroleum and coal product industry sales up by 23.8% to $63.1 billion, the industry's highest annual sales level since 2014 when sales reached $83.2 billion. The industry had previously contracted for two straight years. Following declines in monthly sales for four of 2017's first six months, driven by lower prices and volumes, sales rebounded in July. Sales then increased until November, before declining in December. In constant dollar terms, sales rose by 9.8%, marking the industry's first constant dollar sales increase since 2012 and indicating that volumes, along with prices, increased in 2017.

Sales in the food industry continued to grow in 2017, marking the tenth consecutive annual gain. Sales increased in all nine food industries, particularly in the meat product and the other food manufacturing industries. Sales in the food industry rose 4.5% in 2017 to $102.5 billion, making this and transportation equipment the only Canadian manufacturing industries to exceed the $100 billion per year mark in current dollar sales. In constant dollars, volume sales in the food industry were up 3.8% in 2017.

Sales in the plastics and rubber products industry rose 8.8% to $31.8 billion. This marked the industry's eighth consecutive annual increase in sales.

Annual sales from the chemical manufacturing industry were up 4.0% to $52.3 billion. The increase was driven by strong sales in the basic chemical manufacturing industries, which include the petrochemical industry.

Motor vehicle manufacturing offsets gains in durable goods industries

Manufacturing sales in durable goods industries increased in 2017 by 4.0% or $13.1 billion to $342.7 billion, the fourth consecutive year of gains and the largest percentage increase since 2014. Despite a decline in current dollar sales in the transportation equipment industry, 8 of 10 durable goods industries posted higher sales in 2017, led by the machinery, primary metal, wood product and fabricated metal product industries. After the effect of price changes is removed, sales in volume terms in the durable goods industries grew by 2.3%.

Following three consecutive years of annual manufacturing sales growth, the transportation equipment industry declined 2.4% or $3.1 billion to $127.4 billion in 2017. An annual drop in sales of $3.4 billion (-5.0%) in the motor vehicle industry, due in part to factory shutdowns caused by labour disputes and retooling, drove the decline. The decline was partly offset by an increase in sales of 4.5% or $891 million in the aerospace product and parts industry. In constant dollar terms, sales in the transportation equipment industry declined by 1.1%. The fall was led by a 3.1% decrease of the volume in the motor vehicle industry.

The miscellaneous manufacturing industry was the other durable goods industry that saw sales decline in 2017, down 10.0% or $1.2 billion.

Partially driven by higher demand from the oil and gas extraction sector, the machinery industry reported strong sales in 2017, up 18.4% to $37.0 billion. Higher prices for primary metals drove sales in the industry, up 10.8% to $50.2 billion.

Sales in the wood product industry increased 10.1% to $32.6 billion, marking the sixth consecutive year of annual sales growth. Following an announcement of tariffs on Canadian exports of softwood by the United States in April 2017, monthly sales in the industry grew every month from June to October, then levelled off for the remainder of the year.

Manufacturing sales up in every province

Manufacturing sales rose in every province in 2017. In current dollar terms, the largest annual provincial increase came from Quebec, where sales were up $12.2 billion. In percentage terms, Newfoundland and Labrador reported the largest rise over 2016 (+25.1%).

Strong annual manufacturing sales in the Atlantic region in 2017 were driven by growth in non-durable goods industries. Total manufacturing sales rose in Newfoundland and Labrador (+25.1%) and in New Brunswick (+16.2%). Manufacturing sales in Prince Edward Island increased for the seventh consecutive year, up 8.2% in 2017, led by food manufacturing. Manufacturing sales in Nova Scotia increased 4.4%, a third consecutive annual gain, driven by growth in the non-durable goods industries.

After edging down in 2016, manufacturing sales rebounded in Quebec in 2017, up 8.5% to $155.4 billion. The growth was widespread among non-durable and durable goods industries.

Despite having the smallest provincial annual sales percent increase in 2017 at 1.7%, manufacturing sales still increased in Ontario by $5.0 billion (the third-largest provincial increase in the country). Given that Ontario is the epicentre of the Canadian automobile manufacturing industry, the decline in this industry largely offset the province's sales increases in the petroleum and coal product and the machinery industries.

Manufacturing sales in Manitoba increased by 5.2% to $18.3 billion, evenly divided between durable and non-durable goods manufacturing.

Driven by growth in the non-durable goods industries, total manufacturing sales increased by 12.7% to $15.9 billion in Saskatchewan.

Led by a strong year in the Canadian petroleum and coal product industry, Alberta's annual manufacturing sales rose 13.6% to $71.3 billion. The machinery industry, which supplies products to the oil and gas extraction sector, also posted strong growth in 2017.

Manufacturing sales increased 7.7% to $50.2 billion in British Columbia in 2017, led by strong growth in the wood product and the primary metal industries.

Inventories and unfilled orders

In current dollar terms, monthly inventories began to increase in late 2016, ending the year at $70.1 billion. Total inventories continued to rise throughout the first quarter of 2017, before levelling off for the next two quarters at $74.0 billion. Inventories then rose in the fourth quarter, ending the year at $75.5 billion.

In constant dollar terms, the increase in total inventories reported at the end of 2017 was less pronounced, indicating that the current dollar increase was partly price driven.

Monthly values of unfilled orders began 2017 by increasing for three of four consecutive months, reaching $90.8 billion in April, led by gains in the aerospace product and parts manufacturing industry. Monthly unfilled orders then decreased in six of the year's final eight months, reaching a 2017 low of $85.3 billion in September. The value of unfilled orders ended 2017 at $86.2 billion, 1.6% lower than in December 2016.

Manufacturing employment

Canadian manufacturers employed 1.5 million Canadians in 2017, which represented 9.3% of total employment nation-wide.

Employment in manufacturing depends on the number and size of industrial facilities in the country, as well as the relative labour intensity of each industry. In 2017, even though petroleum and coal products manufacturing was a leading source of manufacturing sales gains, the industry is capital-intensive and therefore a relatively small employer (18,039 jobs). Food processors were Canada's leading employers in manufacturing, providing 227,027 jobs (15.0% of total manufacturing employment). Transportation equipment production was also a major employer, with 195,661 jobs.

At the provincial level, Newfoundland and Labrador registered the largest percentage decline in manufacturing employment (-15.6%), while Quebec had the largest increase (+3.0%). Ontario reported the second largest worker increase (+1.3%) with a total of 669,489 workers in 2017, according to the Survey of Employment, Payrolls and Hours.



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