COVID put the brakes on Canadian manufacturing

Pandemic restrictions dealt the sector a heavy blow

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Gerard LucyshynConsumers usually realize fairly quickly just how important the manufacturing sector is when they stare at empty shelves while shopping. In some cases, being confronted with an empty shelf can lead to hysteria and panic, leading to irrational behaviour.

Most consumers, pre-pandemic, never really had much cause to be concerned about how the Canadian manufacturing sector was doing since, most often, the store shelves in their communities were full. That is, until the outbreak of COVID-19.

Lightning-fast government reaction and the adoption of unprecedented restrictions created a rather large impact on the Canadian manufacturing sector. Only now, after two years, are we seeing signs that this sector is returning to pre-pandemic levels.

It’s usually the concern of economists, politicians, manufacturers and business to assess the health of industries in the short-to-medium term. However, since the outbreak of COVID-19 and the introduction of restrictions, concerns about the health of the economy and that of industries have become front and centre for most Canadians.

The leading source that provides a snapshot of the values of sales and goods manufactured by the Canadian manufacturing sector is the Monthly Survey of Manufacturing. Produced by Statistics Canada, the survey (MSM) covers 21 manufacturing industries in Canada. Its five charts contain historical and current data, seasonally adjusted.

The MSM is released near the middle of each month. Data collection for the survey starts approximately seven days following the reference month. The data is collected from approximately 90 per cent of the manufacturing establishments listed in the Business Register. The register is Statistics Canada’s continuously-maintained central repository of baseline information on businesses and institutions operating in Canada.

The data for the MSM are collected by a mandatory survey of the manufacturing establishments.

It’s important to understand some key definitions about seasonality, type of goods and items being measured in the survey.

Seasonally-adjusted data refers to data that has been modified to eliminate the effect of seasonal and calendar influences. A seasonal pattern in a series can obscure important features by making period-to-period movements in the data more difficult to interpret. Trend cycle estimates are data that represents a smoothed version of the seasonally-adjusted data and provides information on longer-term movements.

Manufacturing industries can be classified into two broad categories based on the type of goods they produce: non-durable or durable. Non-durable goods are any consumer goods in an economy that are consumed in one use or used up over a short period (usually within three years) and then must be repurchased.

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

Durable goods are any consumer goods in the economy that are consumed over a longer period (usually more than years).

Durable goods 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.

The MSM covers the values of manufacturing sales, inventory levels, inventory-to-sales ratio, unfilled orders, and the capacity utilization rate.

Manufacturing sales are based on the assumption that sales occurred during the reference month. However, in some industries the value of production is used instead of sales because of the extended period it takes to manufacture certain products, like in the aerospace and shipbuilding industries.

Inventory levels are measured as the book value of inventory normally held by the establishment. Inventory-to-sales ratio measures the time, in months, required to exhaust inventories if sales were to remain at current levels.

Unfilled orders are defined as a stock of orders that will contribute to future sales, assuming the orders aren’t cancelled.

Capacity utilization is a measurement of how efficiently businesses, organizations and economic entities use resources to produce outputs – that is, a company’s operational efficiency.

The World Health Organization declared the COVID-19 outbreak a public health emergency of international concern on Jan. 30, 2020. Then it declared the outbreak a worldwide pandemic on Mar. 11. While COVID-19 continues to circulate and can’t be declared as over, we can now assess the impact of the government’s reactions and early restrictions on the Canadian manufacturing sector.

Manufacturing sales were $56.4 billion at the end of December 2019. That fell by 35.4 per cent to $36.4 billion by the end of April 2020. Inventory levels were at $87.4 billion at the end of December 2019 and increased marginally to $87.8 billion by April 2020. Inventory-to-sales ratio in December 2019 was 1.55 months, which by April 2020 jumped by 55.4 per cent to 2.41 months. Unfilled orders in December 2020 were $97.6 billion; that increased by 1.8 per cent by April 2020 to $99.4 billion.

The most significant impact was on the Canadian manufacturing sector’s capacity utilization rate. In December 2019, the capacity utilization rate was 76.3 per cent, and by April 2020, it had plummeted to 55.9 per cent. This is the lowest capacity utilization rate since Statistics Canada began tracking it.

Next time you’re out shopping and the shelves appear somewhat empty or your wait time for products seems to be longer than normal, take a look at the Monthly Manufacturing Survey to get an indication as to why.

Gerard Lucyshyn is an economist and an economics lecturer in the Department of Economics, Justice and Policy Studies at Mount Royal University in Calgary. He has also served as a business and economic consultant to various industries. Gerard has authored several articles and research papers on municipal, provincial, federal and international economic and policy issues.

Gerard is a Troy Media Thought Leader. For interview requests, click here.


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Gerard Lucyshyn

Experienced Lecturer In Economics with a demonstrated history of working in the higher education industry. Skilled in Nonprofit Organizations, Budgeting, Business Planning, Analytical Skills, and Program Evaluation. Strong education professional with a Master of Arts (MA) focused in Economics from Carleton University.

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