Canada’s manufacturing sector faced a challenging June, as sales decreased by 2.1% to $69.6 billion, marking the third consecutive quarterly decline. This downturn was driven by significant decreases across multiple subsectors, including transportation equipment, chemical products, and primary metals. The latest figures reflect ongoing struggles within the industry, as economic pressures and sector-specific challenges continue to weigh on manufacturing output.
The transportation equipment subsector experienced a notable decline of 2.9%, falling to $11.0 billion. This decrease was largely attributed to a reduction in motor vehicle parts production, which dropped by 5.6%. The decline in this industry group was widespread, with six out of seven categories reporting lower sales. Retooling efforts in auto assembly plants in the United States had a direct impact on Canadian production, further exacerbating the decline. Additionally, exports of motor vehicles and parts also saw a decrease, falling by 3.9% in June.
The chemical products subsector saw an even sharper decline of 5.8%, dropping to $5.2 billion. This marks the second consecutive month of decline for the sector, bringing sales to their lowest level since June 2021. The drop was primarily driven by lower sales of pesticide, fertilizer, and other agricultural chemicals. These products typically see a reduction in sales following the peak planting season in May. On an annual basis, the chemical products subsector recorded a 4.6% decrease in June, while quarterly sales were down 1.1%.
Following three months of consecutive increases, the primary metals subsector saw a 2.7% decline in sales, dropping to $5.5 billion in June. This decrease was largely due to reduced sales in non-ferrous metal production and processing, excluding aluminum. Shutdowns at several Canadian non-ferrous metal plants contributed to the lower sales figures. The prices for key non-ferrous metals, such as unwrought nickel and nickel alloys and unwrought copper and copper alloys, also saw significant declines of 10.3% and 4.5%, respectively.
Despite the monthly decline, the primary metals subsector posted a 4.7% increase in sales on a quarterly basis, the largest growth among the 21 subsectors for the second quarter of 2024.
Manufacturing sales declined in eight provinces in June, with Quebec, Ontario, and Alberta experiencing the most significant reductions. In Quebec, sales fell by 3.2% to $17.8 billion, driven by lower sales in the primary metals (-7.4%) and fabricated metal products (-9.2%) subsectors. The decline in primary metals was particularly impactful in Montreal, where total sales dropped by 5.7%. Despite the monthly downturn, Quebec’s year-over-year sales were up 3.8% in June, and the province saw a 1.6% increase in sales for the second quarter.
Ontario, the heart of Canada’s manufacturing industry, reported a 1.7% decline in sales, falling to $30.7 billion. This decline was largely due to decreased sales in motor vehicle parts (-5.9%) and machinery (-5.5%). On a year-over-year basis, Ontario’s manufacturing sales were down 7.1% in June, with a 1.2% reduction observed in the second quarter.
Alberta also faced a tough month, with sales decreasing by 2.5% to $8.4 billion. The decline was primarily driven by reduced sales in the chemical product (-7.3%) and machinery (-11.6%) subsectors. Edmonton saw a 0.5% decline in total sales. However, on an annual basis, Alberta’s manufacturing sector reported a 6.5% increase in June, with sales rising by 0.5% in the second quarter.
Total inventory levels in the manufacturing sector edged up by 0.1% to $121.1 billion in June. This increase was driven by higher inventories in 13 of the 21 subsectors, with chemical products (+6.6%) and wood products (+1.6%) leading the gains. However, these increases were partially offset by declines in the transportation equipment (-2.6%) and miscellaneous manufacturing (-9.9%) subsectors. Finished product inventories rose by 2.3%, while raw materials and goods in process inventories fell by 0.9% and 1.0%, respectively.
The inventory-to-sales ratio, which measures the time required to exhaust inventories at the current sales level, increased from 1.70 in May to 1.74 in June. This suggests that inventories are growing faster than sales, a trend that could indicate future challenges for the sector if demand does not pick up.
Meanwhile, total unfilled orders decreased by 0.8% to $105.1 billion in June, largely due to a 1.4% decline in the aerospace product and parts industry group. This reduction in unfilled orders could signal a slowdown in future production activity, particularly in the high-value aerospace sector.
Despite the overall decline in sales, the capacity utilization rate for the total manufacturing sector rose from 79.7% in May to 80.2% in June. This increase was primarily driven by higher capacity utilization in the petroleum and coal product subsector, which saw a 5.2 percentage point rise, and the transportation equipment subsector, which increased by 4.1 percentage points. However, these gains were partially offset by declines in capacity utilization in the chemical (-3.4 percentage points) and primary metal (-1.6 percentage points) subsectors.
In the coming quarters, stakeholders will need to closely monitor these trends and adapt strategies to mitigate the impact of ongoing challenges. With the sector playing a crucial role in the economy, the ability to rebound from this downturn will be critical for sustaining long-term growth and competitiveness.