Canadian manufacturers were slightly more cautious in their outlook for the first quarter of 2006 compared to the fourth quarter of 2005, Statistics Canada reported today.

StatsCan’s Business Conditions Survey found that fewer new orders, near record rates for capacity utilization, a strong Canadian dollar and continued competition from foreign imports were some of the challenges facing manufacturers in recent months.

As a result, manufacturers do not expect to expand production in the first quarter of 2006.

Meanwhile, national employment prospects remained slightly negative for the quarter, although there were still divergences in opinions towards employment prospects expressed by manufacturers in the western provinces and those in central Canada.

Some 15% of manufacturers stated they would increase production in the first quarter of 2006 while another 15% expected to decrease production, leaving the balance of opinion at zero.

This was a 1 point decrease from the +1 balance posted in the October survey.

Manufacturers in the primary metal, chemical, plastics and rubber products industries were the most optimistic about production prospects for the first three months of 2006. A lack of capacity continued to be an issue for some manufacturers.

Although positive for a second consecutive quarter, the balance of opinion concerning current levels of new orders dropped 3 points from the October 2005 survey to +1.

Producers in the computer and electronic products industry were the major contributors to the lower balance of opinion for orders received.

In the January survey, 20% of manufacturers indicated they had a lower-than-normal backlog of unfilled orders compared to another 15% that had a higher-than-normal backlog. As a result, the balance of opinion concerning the current level of unfilled orders stood at -5. This was a 4 point decrease from the October survey results. Producers in the transportation equipment, and computer and electronic products industries, as well as in the primary metals and paper industries were the major contributors to the decrease in the unfilled orders balance of opinion.

In January, three-quarters of manufacturers reported that the current level of finished product inventories was about right, up 7 points from the October level. Some 21% stated that inventories were too high, while 4% said inventories were too low. This left the balance of opinion at -17, a 1 point improvement over the October balance.

The Business Conditions Survey is a quarterly survey requesting opinions on production impediments, finished product inventory levels, new and unfilled order levels, production and employment prospects in the coming three months. The voluntary survey was conducted in the first two weeks of January and attracted almost 4,000 responses from manufacturers.