Canadian manufacturing shipments and orders were a bit weaker than expected in March.

The Monthly Survey of Manufacturing showed that manufacturing shipments slipped 0.7% to $41.7 billion, following the first back-to-back monthly increase in shipments in two years.

Decreases in motor vehicle and chemical products manufacturing offset a surge in the petroleum and coal products industry. Meanwhile, inventories continued to decline for the tenth consecutive month.

“A temporary pullback in motor vehicle assemblies dragged shipments down 0.7% in the month, although other sectors were unable to generate much momentum,” says BMO Nesbitt Burns. It notes that ex-auto shipments did manage to rise 0.1% in March, much of this gain reflected a price-related 14.5% spike in refined petroleum. “Two-thirds of industrial sectors recorded declines in the month, with chemicals falling sharply.”

Despite the monthly setback, BMO says that the underlying trends still look positive. “Even with the March decline, shipments have risen at a 13.7% annual rate over the past three months and orders have jumped at a 28.5% pace over the same period. As well, the backlog of unfilled orders is beginning to post consistent gains, rising 1.4% in March after a 1.0% advance in February.”

TD Bank agrees, noting, “there should be little doubt that the rebound in the manufacturing sector is still firmly intact. First, the slight pull-back capped a particularly strong quarter for shipments. Second, much of the weakness during the month was concentrated in the motor vehicle sector. And finally, the forward-looking indicators still look very promising for the sector.”

“All told, today’s data were a little more than a bump in the road for Canada’s manufacturing sector, which will make a significant contribution to overall GDP growth in 2002,” TD says.

“While both shipments and orders were short of expectations in March, this report does not take away from the broader story that Canadian manufacturing has turned the corner and is recovering. Inventories are in much better shape, the backlog of orders is rising, and U.S. industry is healing, all pointing to an improving picture for Canadian factories,” concludes BMO Nesbitt.