Factory Sales Tumble in September on Supply Chain Disruptions
- Manufacturing sales declined 3.0% to $58.5 billion in September, the steepest fall since April 2020.
- The decrease spanned 6 of 11 major industries and was mainly driven by the motor vehicles and parts industry.
- Sales were down in 8 of 10 provinces, led by Ontario and Quebec.
- The inventory-to-sales ratio increased from 1.60 in August to 1.67 in September, the highest level since June 2020.
- Forward-looking indictors were mixed, with unfilled orders up 0.6% and new orders down 3.0%.
- The capacity utilization rate fell from 77.1% in August to 74.6% in September on lower production.
- The manufacturing sector’s recovery continues to be hindered by supply chain disruptions, especially in the auto sector. While business sentiment among manufacturers remains positive, most analysts expect these supply chain issues to persist well into 2022.
MANUFACTURING SALES POST BIGGEST DECLINE SINCE APRIL 2020
Manufacturing sales declined 3.0% to $58.5 billion in September, the steepest fall since April 2020. The picture was even more disappointing after stripping out price effects. In constant dollar terms, manufacturing sales tumbled 4.2%, indicating a lower volume of goods sold.
The manufacturing sector’s recovery continues to be hindered by supply chain disruptions, especially in the auto sector. While business sentiment among manufacturers remains positive, most analysts expect these supply chain issues to persist well into 2022.
SALES DECLINE DRIVEN BY MOTOR VEHICLE AND PARTS INDUSTRY
The decrease in sales spanned 6 of 11 major industries. Once again, the decline was driven predominately by the auto sector, which continues to be severely affected by the global semiconductor shortage. Sales of motor vehicles and parts plunged by 24.7% to $4.1 billion, the lowest level since May 2020. While sales in the motor vehicle industry increased 9.3% in the third quarter, they remained 42.2% down compared with the third quarter of 2020.
Sales of primary metals fell 6.3% to $5.2 billion, the first decline in nearly a year and a half. According to Statistics Canada, a maintenance shutdown at a major non-ferrous metal plant in Quebec was mainly responsible for the decline. Primary metal sales were up 4.6% in the third quarter, the fifth consecutive quarterly gain.
Among major industries, sales were also down in plastic and rubber products (-3.6%), chemical products (-1.8%), aerospace (-3.3%), and paper products (-0.9%).
On the positive side, sales of petroleum and coal products rose 3.0% to $6.7 billion in September, thanks to higher prices. Sales in the petroleum and coal industry increased 15.1% in the third quarter, the fifth consecutive quarterly gain.
Sales of wood products rose 1.5% to $3.5 billion in September. The gain was mainly due to higher shipment volumes, as prices for lumber and other wood products decreased on the month. Despite this gain, sales of wood products were down 29.6% in the third quarter.
Sales of fabricated metal products (+0.9%), machinery (+0.3%), and food products (+0.1%) were also up on the month.
ONTARIO AND QUEBEC SEE STEEPEST FALLS
Regionally, sales were down in 8 of 10 provinces. Sales in Ontario decreased 4.1% to $24.8 billion in September, primarily due to lower sales of motor vehicles and parts. Sales in Quebec fell 2.2% to $15.3 billion, with the primary metal, plastic and rubber, and aerospace industries contributing the most to the decline.
Newfoundland and Labrador was the only province to see significant sales growth in September. Specifically, sales rose 6.1% to $303.4 million, attributable to higher sales of durable goods. Despite this gain, the province’s sales were still 43.3% below the pre-pandemic level of February 2020.
INVENTORY-TO-SALES RATIO UP ON RECORD HIGH INVENTORIES
Total inventories increased 1.3% to a record high of $97.6 billion in September, the ninth straight monthly increase. This, combined with a decrease in sales, pushed up the inventory-to-sales ratio from 1.60 in August to 1.67 in September, the highest level since June 2020. This ratio represents the number of months it would take to completely clear inventories assuming sales remain at their current level.
FORWARD-LOOKING INDICATORS MIXED
Forward-looking indictors were mixed. The total value of unfilled orders increased 0.6% to $94.7 billion in September, mostly due to higher unfilled orders of machinery and fabricated metal products. Year over year, unfilled orders were down 1.3%.
On the other hand, the total value of new orders fell 3.0% to $59.1 billion in September, mainly attributable to lower new orders of transportation equipment. New orders were up 8.1% on a year-over-year basis.
CAPACITY UTILIZATION RATE DECREASES
Finally, the manufacturing sector’s capacity utilization rate decreased from 77.1% in August to 74.6% in September on lower production. The decline in this indicator is also largely an auto sector story. The capacity utilization rate in the transportation equipment industry fell sharply from 70.6% in August to 55.3% in September.