Motor vehicle manufacturing dragged down total manufacturing shipments by 0.5% to $42.2 billion Statistics Canada reported this morning. That’s the second consecutive decline in manufacturing shipments.

Excluding the volatile motor vehicle and parts industries, shipments edged up a modest 0.1%.

Manufacturing in Ontario retracted 1.6%, down $353 million to $22.3 billion. A slowdown in motor vehicle manufacturing coupled with decreases in shipments of petroleum and food contributed to Ontario’s third decline in the last four months.

The slide adds more support to the Bank of Canada’s decision to cut rates yesterday.

“Manufacturing shipments slid by 0.5% in November, providing support to the Bank of Canada’s decision to cut rates by a quarter point yesterday as the latest evidence of weakness in the domestic economy falls into place alongside other indicators such as a five month slide in vehicle sales and weakness in nominal exports,” says RBC Financial.

BMO Nesbitt Burns reports that, in volume terms, shipments were about flat, repeating the performance in October but well shy of the 1% rise in U.S. industrial production in November.

New orders were a bit better than expected up 1%, Nesbitt notes, although this followed a 3.8% drop the prior month (revised from the initial reading of -3.2%). Also, the backlog of unfilled orders fell 0.8% and inventories were flat, bumping up the inventory/shipments ratio to a still-low 1.42 — a year ago it stood at 1.45.

“On year-ago levels, inventories are down by 6.2% after accumulating over the second half of 2002 and through the spring of 2003 amidst and an unanticipated slow down that hit key sectors of the economy through successive shocks over the course of the year. Manufacturers had become saddled with rising inventory-to-sales ratios that were costly to finance,” RBC says. “The fact that the pace of decumulation is slowing may well bode well for the ability of inventory investment to contribute towards economic growth and drive higher working capital financing requirements in 2004.”

“Given the surge in the Canadian dollar and the fact that auto production was down 3.6% in the month, these results are not overly weak. However, the Canadian manufacturing sector is clearly struggling to generate any growth at a time when the U.S. factory sector is posting some of the strongest survey readings in 20 years,” Nesbitt says. “Thus, this report will only add to the Bank of Canada’s dovish convictions.”