Manufacturing shipments declined 1.3% to $43.6 billion in November, the lowest level since June.

Coupled with rising finished-product inventories and lower unfilled orders, the manufacturing sector has lost momentum in recent months.

BMO Nesbitt Burns notes that weakness was fairly widespread, but was most notable in motor vehicles, where shipments declined 4.7%. Auto exports have slipped for three straight months, so a pullback was not a surprise. And, Ontario was hit hardest. Energy products also fell sharply in the month.

“Further contributing to the soft tone in the report, new orders slid 0.9%. As well, inventories rose 1.0% in November, which together with the decline in shipments pushed the inventory/shipments ratio to 1.46, a level last seen in March. With manufacturing jobs having fallen in December, Canadian factory activity appears to have cooled further last month,” it says.

“The ongoing struggles of the U.S. economy have finally started to spill over to Canada’s heavily export-oriented manufacturing sector, and there is likely to be more pain to come in the months ahead,” observes TD Bank. “The details of the report were quite simply sour — leaving little doubt that the sector as a whole is rapidly losing steam. For one, the slide was broadly based across most industry groups, with two industry sectors reporting a decline in shipments for every one that reported a gain. In addition, orders appear to be drying up.”

“With little evidence that the U.S. economy is pulling itself out of the hole, Canada’s manufacturing sector is likely to take a few more bumps and bruises in the months ahead,” says TD. “Of particular note, the manufacturing sector shed more than 25,000 jobs in December. However, on balance, today’s data are perfectly consistent with our view that the Canadian economy will grow at a rate of 2.5%-3.0% in the final quarter of 2002, and the opening half of 2003.”

RBC Financial Group economists say that with this report and October’s flatness in shipments, the debate over whether Canada is catching the U.S. manufacturing disease will likely intensify despite strong increases in the previous three months.

However, Nesbitt reminds that compared to the U.S., manufacturing in Canada had an impressive performance in 2002. Shipments were up 7.9% through November, and employment jumped by 124,800 for the year, accounting for over 22% of new jobs created in Canada, despite the drop in December.

“Canadian factory activity slowed late last year. Accordingly, GDP is likely to be roughly flat in November, consistent with quarterly growth at the lower end of the 2.5%-to-3.0% range for the fourth quarter,” Nesbitt concludes.