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For anyone looking at the strong Canadian manufacturing numbers released Tuesday and wondering if it's too good to last, I have two words for you: unfilled orders.
Statistics Canada's survey of manufacturing trends for February showed the biggest month-to-month jump in sales since mid-2011, up 2.6 per cent. This surprising strength is unabashedly bullish for first-quarter gross domestic product growth; on the back of the manufacturing pickup, economists are now musing that GDP might have expanded 0.3 per cent in February alone, and GDP growth for the full quarter could be as high as 2 per cent on an annualized basis.
Still, with manufacturers' inventory levels at a four-year high, some pundits were quick to suggest that the good times couldn't last. The warehouses are well-stocked, and new orders actually fell in the month; a pause in manufacturing activity may already be in the cards.
But the survey also revealed that manufacturers' unfilled orders climbed to a massive $69.6-billion in February. That's the biggest backlog of unfilled orders in history, and it's up a whopping 13 per cent from a year earlier.
That kind of backlog in orders may, to some extent, justify the inventory build. Many manufactured goods are, in turn, used as parts, materials and equipment in the making of other goods; expectations of demand for these goods from other manufacturers may be behind at least some of the rise in inventories.
Indeed, the main source of the boom in unfilled orders is a sector that requires a lot of inputs from other manufacturers. Unfilled orders for aerospace products and parts have jumped 34 per cent in the past year, and account for 58 per cent of all the unfilled manufacturing orders.
Ultimately, the unfilled-order backlog owes much to a single manufacturer: Bombardier Inc. The country's biggest aerospace firm reported a company-record $33-billion backlog of aircraft orders at the end of 2012.
Bombardier's dominance of the unfilled-order data gives us some insight into the time frame over which the order overhang will provide fuel for manufacturing activity, and, by extension, GDP growth. Based on 2012 production rates, Bombardier has indicated that the manufacturing of the bulk of those planes will spread out over the next two to seven years.
So, we have long-term fuel to keep manufacturing activity humming for a long time. However, the nature of the backlog suggests that this massive unfilled-order backlog may deliver a slow-but-steady contribution to GDP, rather than a big boost this year.
David Parkinson is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights , and follow David on Twitter at @ParkinsonGlobe .
David Parkinson