Inventory levels remain steady in May

by Canadian Shipper

Inventories remained unchanged in May, standing at $62.0 billion, following a 0.3% rise in April, the latest Statistics Canada records indicate.

Prior to this, inventories had fallen for 10 consecutive months; this was the longest string of monthly declines since the economic downturn of 1991 and 1992, when manufacturers cut back inventories over 14 consecutive months.

Manufacturers’ recent efforts to reduce their stocks concur with April’s report of the Quarterly Business Conditions Survey. In this survey, manufacturers indicated that their inventories were under control, orders were picking up and it was time to boost production.

In addition, according to the recent release of industrial capacity utilization rates, manufacturers increased their capacity use to 80.6% in the first quarter, following five consecutive quarterly declines. This is up from 78.8% in the fourth quarter of 2001.

Inventories remained stable at $62 billion in May. However, finished-product inventories fell 0.8% to $19.3 billion in May, the lowest level in 20 months. This was offset by higher raw materials (+0.3%) and good-in-process (+0.5%) inventories.

As the economy weakened in 2001, manufacturers struggled to lower their inventories. Despite significant production cuts, finished-product inventories remained stubbornly high through the first half of 2001, as global demand weakened and markets remained uncertain. Finished-products peaked at $20.2 billion in June 2001, and have since decreased 4.8% to $19.3 billion. April’s Business Conditions Survey also reported that manufacturers were much more satisfied about their levels of finished-product inventories.

Inventories of chemical products rose 3.0% to $5.3 billion in May, the third increase in a row. As well, inventories in the motor vehicle parts industry were up 3.4% to $1.8 billion, the highest level in a year and a half.

Offsetting these increases, the computer and electronic products industry reported a sixth straight drop in inventories. Stocks fell 2.9% to $4.6 billion in May, as high-tech manufacturers continued to scale back their holdings. The aerospace products and parts industry also reported a 0.9% inventory decrease to $7.7 billion. Inventories in the aerospace products and parts industry peaked at $8.2 billion in the fall of 2001, and have been falling ever since.

May’s decline in shipments, combined with stable inventories, resulted in the first increase of the inventory-to-shipment ratio since December. The ratio edged up to 1.43 from April’s 18-month low of 1.41. Despite the increase, the ratio remained well below the nine-year high of 1.56 set in October 2001. Because of the economic slowdown in 2001, the ratio had increased sharply over the course of the year, as lower inventories initially did not follow the significant cuts in production. The ratio is a key measure of how long it would take to deplete inventories at the current pace of shipments.

The finished-product inventory-to-shipment ratio remained unchanged at 0.44 for the second straight month, a 15-month low. Both shipments and finished-product inventories declined in May, resulting in the stable ratio.

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