One of the most significant changes in the global economic landscape over the last two decades has been the shift by overseas firms of their auto production to North America, following their success in sales. Still, the auto industry in Canada remains on a solid footing according to a new article published in Canadian Economic Observer. The Asian auto manufacturers have sustained output, investment and employment in this industry at a high level, with the prospect for future growth.

The downsizing of the traditional Big 3 firms has been widely-publicized, reflecting the traumatic impact on their employees and their suppliers. Less appreciated, however, is how rapidly overseas firms have ramped up production in Canada to offset many of these losses.

Japanese-based manufacturers have filled much of the gap left by the traditional North American automakers in production in Canada. In 2006, Japanese automakers produced just over 900,000 automobiles in Canada, double their level in 1998. As a result, their share of the domestic market in production jumped from 16% to more than one-third (36%) during this period. This followed a similar trend in sales.

Also, previously unpublished data reveal that these new domestic auto manufacturers behave like the traditional North American firms in terms of exports and imports.

While exports by the traditional North American manufacturers tumbled, exports by the Japanese-owned manufacturers picked up much of this slack. Exports of the traditional North American firms peaked at $51.0 billion in 1999, before falling by almost one-third since then. However, exports of the new Japanese-owned manufacturers rose by one-third, from $10.1 billion in 1999 to $15.9 billion in 2006.

In 2006, the net exports of new domestic manufacturers equalled 68% of the net exports of the Detroit-based manufacturers: as recently as 1997, their share was negligible. Only a shortage of production capacity slowed the growth of their net exports in 2006.

Meanwhile, the behavior of the new domestics and traditional producers in importing parts are comparable. In the mid-1990s, overseas-based manufacturers imported auto parts in such large numbers that they offset their growing revenues from auto exports. Since then, however, the situation has completely turned around, with Japanese-owned manufacturers posting a surplus of $5.9 billion in 2006. These new domestic auto makers used fewer imported parts in their vehicle exports than the traditional Big 3.

Imports into Canada by the traditional North American manufacturers increased much more than imports by the new domestics from 1997 to 2004, before shortages forced the direct importation of more vehicles from overseas. Like the traditional North American manufacturers, the new domestic manufacturers ship most of their exports to the United States.

On the whole, Canadian consumers are now buying almost as many overseas models as North American brands. In the car segment, more overseas brands than North American have been sold in Canada every year since 2001. This gap is growing.

Even in the popular sport utility vehicle segment, overseas brands have practically caught up with the traditional Big 3.

In March, manufacturers shipped goods worth an estimated $50.1 billion, representing a 2.8% gain over the previous month. For the first quarter, shipments were up 1.0% compared to the fourth quarter of 2006.

Using constant dollars, which take price fluctuations into account, the volume of shipments rose 1.6% to $45.1 billion, the fourth increase in five months.

Shipments advanced in 15 of 21 manufacturing sectors, representing about 78% of total output.

Both durable and non-durable goods saw shipments increase in March. The petroleum and coal products industry continued to heavily influence the direction of non-durable shipments, with a 2.2% increase in non-durable goods to $22.4 billion. Durable goods increased 3.3% on the back of strong automotive and aerospace production.

After a slight increase in February, the transportation equipment sector surged 7.5% in March, recovering from the sharp loss recorded in January. Shipments increased to $10.4 billion, slightly exceeding the recent high reached in December 2006.

Unfilled factory orders, an indicator of probable future shipments, remained virtually unchanged from February, edging up 0.2% and remaining at the highest level since November 2001. New orders slipped 1.4% in March, giving up some of the gains from the previous month.

According to the Labour Force Survey, manufacturing employment edged up slightly in March after having dipped in February. In general, employment levels in the manufacturing sector have remained fairly stable over the past eight months.

Motor vehicle and aerospace manufacturers rev up in March

Transportation equipment shipments were up sharply in March, following a slight increase in February. The strongest increase was a 13.4% jump in production of aerospace products and parts. Other than a 13.0% drop in January, shipments have increased in four of the past five months.

The automotive sector also bounced back with the end of the rail strike and with new-model production kicking into gear. Motor vehicle shipments increased 7.2% while shipments of motor vehicle parts gained 4.3% in March. Overall, shipments in the motor vehicle sector increased about $475 million.

Other areas which likely benefited from a return to normalcy in rail services included chemical products and non-metallic mineral products. Chemical product shipments gained 1.0% in March after slipping 1.9% in February. Similarly, non-metallic mineral shipments increased 3.9% after having dropped 4.8% during the previous month.

Other areas posting notable increases in shipments included the petroleum and coal product sector (+9.3%) and the primary metal sector (+2.3%). However, price was a factor for both of these industries. Petroleum and coal product prices jumped 8.9%, accounting for almost all of the increase in value of shipments. Prices within the primary metal sector were also higher, gaining 3.8% according to the Industrial product and raw materials price indexes. Export demand in Asia continued to be very strong, driving up the prices for products such as nickel and copper.

Strong gains in Central Canada

In March, eight provinces posted higher shipments with much of the strength concentrated in Central Canada.

Ontario's manufacturers made up some ground lost in recent months as shipments bounced back 3.6% to $24.4 billion in March, the first increase since December. The first quarter of 2007 has been lacklustre as shipments declined 1.8% compared to the same quarter in 2006.

In March, motor vehicle manufacturing contributed to Ontario's boost in shipments. Assembly lines were busy as some newer models proved to be popular in North America. In addition, a major refinery returned to full production in March following the disruption caused by a fire in February.

Production of aerospace products and parts dominated Quebec's manufacturing sector in March. Overall, shipments rose 2.2% to $12.0 billion, following a healthy 2.5% jump in February. Quarterly shipments were on par with the first quarter of 2006 (+0.2%).

Strong demand and soaring prices also contributed to increases in Quebec's petroleum and primary metals industries.

Manufacturing shipments, provinces and territories
	February 2007r	March 2007p	February to March 2007
	Seasonally adjusted
	$ millions		% change
Canada	48,773	50,136	2.8
Newfoundland and Labrador	198	246	24.2
Prince Edward Island	121	123	2.4
Nova Scotia	792	803	1.4
New Brunswick	1,152	1,176	2.1
Quebec	11,767	12,027	2.2
Ontario	23,571	24,425	3.6
Manitoba	1,275	1,421	11.5
Saskatchewan	866	849	-2.0
Alberta	5,601	5,587	-0.3
British Columbia	3,423	3,472	1.5
Yukon	3	2	-19.2
Northwest Territories including Nunavut	5	5	-2.4
r revised p preliminary

Manitoba's manufacturers posted a very strong month as shipments jumped 11.5% to $1.4 billion. Again, strong demand and rising prices contributed to big gains in Manitoba's primary metals industry. In addition, healthy increases were also reported in the transportation equipment and miscellaneous industries. First quarter shipments jumped 14.5% in Manitoba compared to the same quarter in 2006, one of the strongest quarterly gains in the country.

New orders ease back

New orders decreased 1.4% to $50.2 billion, easing slightly from the recent high of $51.0 billion in December. Despite the decline in March, new orders remained strong in the first quarter of 2007, increasing by 1.7% compared to the final quarter of 2006.

Gains and losses for new orders were evenly split between reporting industries. The transportation equipment sector posted the most sizeable decrease in March, with new orders dropping 8.6% following a 12.8% increase the previous month.

The largest decrease within the transportation equipment sector came in the aerospace products and parts sector, which plummeted 42.0% after a huge 71.1% surge in orders the previous month. Due to the high value of goods produced by the aerospace industry, monthly swings of hundreds of million dollars are not unusual. However, the decrease overwhelmed some moderately strong gains in new orders seen elsewhere within the sector, such as motor vehicles which increased 6.5%, and motor vehicle parts, up 5.6%.

Unfilled orders remain at five-year high

Unfilled orders edged up 0.2% to $46.7 billion in March, remaining at the highest level since 2001.

Unfilled orders in the transportation equipment industry remained virtually unchanged as a whole compared to February. However, this masked some variability within the transportation sector. Unfilled orders rose for the tenth consecutive month in the aerospace industry, partly as a result of a huge jump in new orders in February. This was offset by a decrease in unfilled orders for the motor vehicle and motor vehicle parts industries.

Within the machinery sector, unfilled orders continued to increase in March, with a 1.0% rise. This was the fifth consecutive monthly increase in unfilled orders for machinery, and the highest level recorded since the beginning of 2000.

As many industries do not carry a balance of unfilled orders from month to month, the transportation equipment sector typically accounts for slightly over half of all unfilled orders in the manufacturing sector.

Inventories continue to edge down after peaking at the end of 2006

Inventories continued to be drawn down following the end of the rail strike in February. Total inventories for manufacturers fell 0.2% to $62.7 billion in March on the heels of a similar decline in February.

Inventories hovered at near record levels for several months near the end of 2006 before easing slightly in the new year.

Overall, 11 of 21 industries decreased their inventories in March, with most of the decrease coming from motor vehicle parts (-4.9%), aerospace products and parts (-1.8%), and the primary metal sectors (-1.2%). The one major exception to inventory declines came from petroleum and coal product manufacturers, who gained 2.7%.

Inventory-to-shipment ratio trending slowly downward

After peaking at a three year high of 1.33 in October 2006, the inventory-to-shipment ratio has decreased slowly, sliding to 1.25 in March from 1.29 in February. March's ratio was at the lowest level since January 2006.

The inventory-to-shipment ratio is a key measure of the time, in months, that would be required to exhaust inventories if shipments were to remain at their current level.

Note to readers

Preliminary estimates are provided for the current reference month. Estimates, based on late responses, are revised for the three prior months.

Non-durable goods industries include food, beverage and tobacco products, textile mills, textile product mills, clothing, leather and allied products, paper, printing and related support activities, petroleum and coal products, chemicals, and plastics and rubber products.

Durable goods industries 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.

Unfilled orders are a stock of orders that will contribute to future shipments assuming that the orders are not cancelled.

New orders are those received whether shipped in the current month or not. They are measured as the sum of shipments for the current month plus the change in unfilled orders. Some people interpret new orders as orders that will lead to future demand. This is inappropriate since the "new orders" variable includes orders that have already been shipped. Readers should note that the month-to-month change in new orders may be volatile. This will happen particularly if the previous month's change in unfilled orders is closely related to the current month's change.

Not all orders will be translated into Canadian factory shipments because portions of large contracts can be subcontracted out to manufacturers in other countries. Also, some orders may be cancelled.

Company's manufacturing, product development, and service to US organizations and companies stronger than ever

St. Louis, Missouri - FKI Logistex® , a global leader in integrated material handling solutions, announces that its continuing strategy of investing in its US-based operations is a good example of successful foreign investment in North American manufacturing, engineering, and product development. Major customers include the United States Postal Service, US airports and overnight delivery suppliers, as well as an extensive portfolio of US-based blue-chip manufacturers, retailers, and distribution companies.

"FKI Logistex continues to move forward and grow in the US," says Steve Ackerman, president, FKI Logistex North America. "The more-than-1,500 US employees of FKI Logistex represent an ongoing investment in manufacturing, product development, and engineering in the United States. FKI Logistex is committed to supplying cost-effective and innovative material handling solutions that solve the most difficult supply chain productivity problems of North American industry."

Examples of the sustained and accelerated growth of FKI Logistex's North American operations include the opening of a new, multimillion-dollar Technology and Education Center in its Cincinnati, Ohio facility; the development of several major hardware and software products, including the GS100 Series of low-cost palletizers and the UniSort® MXT™ sortation software system; and the development of the UniSort Linear Belt Sorter™ (LBS), used extensively by the United States Postal Service for mail sortation. Among the many other products and systems developed by FKI Logistex in the US, advanced picking, sortation, and palletizing technology is being exported by the company with great success into manufacturing plants, warehouses, and distribution centers around the world.

Research and development at FKI Logistex's Cincinnati operation is driving the company's global conveyor upgrade project, which will create a unified conveyor design and manufacturing platform for FKI Logistex's operations across the world. Cross-border work between the company's various global locations has led to the development of the new LS-4000 series of environmentally friendly sorters, featuring the latest energy-efficient and quiet linear synchronous motors. The company has also instituted a graduate engineering recruiting program to develop an ongoing engineering talent pool across the company.

TORONTO — Electronics designer Fidus Systems is experiencing strong demand at its Toronto Design Centre. After just six months of operation, the centre has moved to larger quarters – doubling its capacity and adding a hardware laboratory.

“New contract bookings here exceeded those in any other region last quarter. Market response has more than justified our decision to move into Toronto,” says Cameron Redmond, Fidus Business Manager for Toronto. “We’re designing multiple products for industrial controls, video, wireless and defence.”

Fidus also booked 95 percent more business from Toronto last quarter than it did there in all of 2006.

Founded in 2001, Fidus employs more than 60 engineers and support staff globally. The company’s expanded Toronto location (off Hwy 427 between Dundas and Burnhamthorpe) serves clients throughout the GTA, Waterloo, Burlington, and Southern Ontario.

Fidus is looking for additional talent in Toronto – experienced designers in Hardware, FPGA, PCB Layout and High-speed Signal Integrity Analysis.

From February to March, prices charged by manufacturers, as measured by the Industrial Product Price Index (IPPI), registered a fifth consecutive monthly increase. The 1.3% rise in the index mainly reflected the strength of prices for petroleum and coal products and primary metal products.

On a 12-month basis, the IPPI rose by 4.8%, the strongest advance since October 2004. The upward pressure came largely from higher prices for primary metal products and petroleum and coal products. The upward movement was tempered by a drop in prices for lumber and other wood products.

From February to March, the Raw Materials Price Index (RMPI) rose 1.3%, down from the 2.5% increase observed in February. The monthly increase in the index was mainly attributable to non-ferrous metals. All raw material groups posted gains, except for vegetable products and non-metallic minerals.

Compared to March of last year, raw materials cost plants 9.7% more, a rate of increase greater than those posted in January and February. The rise in the index was mainly led by non-ferrous metals and was slowed by mineral fuels.

In March, the IPPI was 117.9 (1997=100), up from February's level of 116.4. The RMPI was 167.2 (1997=100), up from February's revised level of 165.0.

IPPI: Price index pushed up by petroleum products and primary metals

Month over month, manufacturers' prices were mainly propelled by rising prices for petroleum and coal products and primary metal products.

The prices for petroleum and coal products jumped 8.9%, following the 4.7% increase recorded in February. March's rise is the greatest month-over-month change recorded since April 2006. Prices for petroleum products were pushed up by geopolitical tensions and a slowdown in the activity of some refineries. If the prices for petroleum and coal products had been excluded, the IPPI would have increased 0.4% rather than rising 1.3%.

The prices for primary metal products increased 3.8 % in March, after advancing 2.4% in February. Prices for metal products were pushed up by the strong economic activity in Asian countries, as well as by the seasonal factor of domestic demand and a decline in inventories. In March, the index was boosted by a surge in prices for nickel products (+18.5%) and, to a lesser extent, by the appreciation of copper and copper alloy products (+6.8%). Nickel prices continued to rise toward a new historic peak, and the level of the index for March was more than double the average for 2006.

In March, the rise in the IPPI was slowed slightly by decreases in prices for electrical and communication products (-0.8%), motor vehicles (-0.2%) and pulp and paper products (-0.3%).

IPPI: Primary metals strengthen their leading position in the 12-month change

The IPPI was up 4.8% from March 2006 to March 2007, the highest rate of increase since the peak recorded in October 2004. The Industrial Product Price Index was boosted by rising prices for primary metals and for petroleum and coal products and, to a lesser extent, by increased prices for pulp and paper products, meat, fish and dairy products, as well as fruit, vegetables and feed products. The IPPI excluding petroleum and coal grew at a pace comparable to that in February. If the prices for petroleum and coal products had been excluded, the year-over-year rise in the IPPI would have been 4.6% in March.

Prices for primary metals were up 26.6% compared to March 2006. Year-over-year price advances were observed for nickel products (+213.0%), copper and copper alloy products (+32.8%), refined zinc products (+43.9%) and precious metal basic manufactured shapes (+43.8%).

The annual rate of growth in the IPPI was slightly mitigated by lower prices for lumber and other wood products (-3.7%) and rubber, leather and plastic products (-1.4%).

RMPI: Higher prices for non-ferrous metals

In March, raw material prices rose 1.3%, down from the rate of 2.5% recorded in February.

Mineral fuels were up a modest 0.3%, following a rise of 5.5% in February. The price for natural gas advanced 1.5%, as a result of colder-than-expected weather and a decline in inventories. The price for crude oil remained unchanged. Without mineral fuels, the RMPI would have increased 2.3% from February instead of rising 1.3%.

Prices for non-ferrous metals climbed 4.4% after two consecutive monthly declines. In March, the rise in prices was attributable to radioactive concentrates (+13.3%), nickel concentrates (+18.9%), copper concentrates (+8.2%), copper and copper alloys scrap (+10.2%) and lead concentrates (+4.8%).

Aside from non-ferrous metals, the prices for animals and animal products increased 1.9% and contributed significantly to the rise in the index. Weak supply and anticipation of the Easter holiday exerted upward pressure on the prices of cattle for slaughter and poultry.

On a12-month basis, raw material prices rose 9.7% in March, up from the 9.2% recorded in February and up substantially from the 3.1% registered in January. Without mineral fuels, the RMPI would have risen 22.3% instead of 9.7%.

Non-ferrous metals accounted for most of the 12-month increase, with prices rising 50.8%, mainly on the strength of year-over-year increases in the prices for radioactive concentrates and concentrates of zinc, nickel, lead and copper.

Prices were also up over the previous year in the case of vegetable products (+19.7%), wood (+12.1%), animals and animal products (+4.2%) and ferrous materials (+12.1%).

However, prices for mineral fuels were down 2.2%, owing to a drop in the price for natural gas (-18.6%), while crude oil prices rose 1.2%. Year over year, natural gas prices declined for a ninth month in a row, but the decrease was less pronounced than those recorded in the first two months of the year.

Impact of exchange rate

The value of the Canadian dollar against the US dollar rose 0.2% from February to March. Consequently, without the effect of the exchange rate, the change in the IPPI would have remained the same at 1.3%.

On a 12-month basis, the value of the Canadian dollar fell 0.9% against the US dollar. If the impact of the exchange rate had been excluded, producer prices would have risen 4.5% between March 2006 and March 2007, rather than actually advancing 4.8%.

Prices for intermediate goods increase for a second consecutive month

Prices for intermediate goods rose 1.4% from February to March. The majority of the increase in the prices for intermediate goods was attributable almost exclusively to petroleum products and primary metal products. Modest declines were registered by electrical and communication products, pulp and paper products, chemical products and lumber products.

Producers of intermediate goods received 6.6% more for their products in March 2007 than in March 2006. Higher prices were observed for primary metal products, petroleum products, pulp and paper products, fruit, vegetables and feed products and meat, fish and dairy products.

A few price decreases moderated this year-over-year growth, in particular declines for lumber products and rubber, leather and plastic products.

Increase in petroleum prices a determining factor in the change in finished product prices

Prices for finished products rose 1.0% from February to March, on the strength of petroleum and coal products and, to a lesser extent, meat, fish and dairy products. However, the increase in prices for finished products was slightly diminished by lower prices for motor vehicles.

Since March 2006, prices for finished products have risen 1.8%. Price increases were noted for petroleum and coal products, meat, fish and dairy products, tobacco products, fruit, vegetables and feed products, chemical products, beverages, electrical and communication products as well as motor vehicles.

Industrial product price indexes
(1997=100)
	Relative importance	March 2006	February 2007r	March 2007p	March 2006 to March 2007	February to March 2007
					% change
Industrial product price index (IPPI)	100.00	112.5	116.4	117.9	4.8	1.3
IPPI excluding petroleum and coal products	94.32	107.2	111.6	112.1	4.6	0.4
Aggregation by commodities
Meat, fish and dairy products	5.78	106.3	110.9	111.1	4.5	0.2
Fruit, vegetables, feeds and other food products	5.99	104.3	108.1	108.1	3.6	0.0
Beverages	1.57	122.1	123.7	124.2	1.7	0.4
Tobacco and tobacco products	0.63	188.0	203.4	203.4	8.2	0.0
Rubber, leather and plastic fabricated products	3.30	118.8	117.1	117.1	-1.4	0.0
Textile products	1.58	100.5	100.7	100.7	0.2	0.0
Knitted products and clothing	1.51	104.7	104.3	104.3	-0.4	0.0
Lumber and other wood products	6.30	90.4	87.2	87.1	-3.7	-0.1
Furniture and fixtures	1.59	117.5	118.9	118.9	1.2	0.0
Pulp and paper products	7.23	103.5	108.8	108.5	4.8	-0.3
Printing and publishing	1.70	115.8	117.4	117.4	1.4	0.0
Primary metal products	7.80	125.8	153.5	159.3	26.6	3.8
Metal fabricated products	4.11	122.0	124.0	124.2	1.8	0.2
Machinery and equipment	5.48	107.3	108.0	107.9	0.6	-0.1
Motor vehicles and other transport equipment	22.16	93.8	94.3	94.1	0.3	-0.2
Electrical and communications products	5.77	93.7	95.2	94.4	0.7	-0.8
Non-metallic mineral products	1.98	119.3	121.6	121.6	1.9	0.0
Petroleum and coal products1	5.68	210.1	206.5	224.8	7.0	8.9
Chemicals and chemical products	7.07	123.7	125.4	125.3	1.3	-0.1
Miscellaneous manufactured products	2.40	112.3	115.5	115.4	2.8	-0.1
Miscellaneous non-manufactured products	0.38	214.1	358.5	395.5	84.7	10.3
Intermediate goods2	60.14	115.3	121.2	122.9	6.6	1.4
First-stage intermediate goods3	7.71	130.5	160.8	167.0	28.0	3.9
Second-stage intermediate goods4	52.43	113.0	115.2	116.2	2.8	0.9
Finished goods5	39.86	108.4	109.3	110.4	1.8	1.0
Finished foods and feeds	8.50	113.0	115.1	115.3	2.0	0.2
Capital equipment	11.73	101.0	101.8	101.7	0.7	-0.1
All other finished goods	19.63	110.8	111.3	113.5	2.4	2.0
r revised p preliminary 1. This index is estimated for the current month. 2. Intermediate goods are goods used principally to produce other goods. 3. First-stage intermediate goods are items used most frequently to produce other intermediate goods. 4. Second-stage intermediate goods are items most commonly used to produce final goods. 5. Finished goods are goods most commonly used for immediate consumption or for capital investment.

Note to readers

The Industrial Product Price Index (IPPI) reflects the prices that producers in Canada receive as the goods leave the plant gate. It does not reflect what the consumer pays. Unlike the Consumer Price Index, the IPPI excludes indirect taxes and all the costs that occur between the time a good leaves the plant and the time the final user takes possession of it, including the transportation, wholesale, and retail costs.

Canadian producers export many goods. They often quote their prices in foreign currencies, particularly for motor vehicles, pulp, paper, and wood products. Therefore, a rise or fall in the value of the Canadian dollar against its US counterpart affects the IPPI.

The Raw Materials Price Index (RMPI) reflects the prices paid by Canadian manufacturers for key raw materials. Many of these prices are set in a world market. Unlike the IPPI, the RMPI includes goods not produced in Canada.