Daily Archives: March 7, 2012

Grim outlook for Canadian manufacturing


Abandoned Arrow Shirt factory, OntarioThe outlook for Canadian manufacturing, warns the CIBC, will remain grim as long as a strong dollar keeps labour costs high, “deepening the hollowing out of the industrial heartland and boosting regional income inequality in the years ahead,” says the Huffington Post.

The Canadian loonie looks good for shoppers who buy consumer and retail goods made outside Canada. Our import prices are actually 10% lower than they were a decade ago. Back in 2002, when the loonie was $0.62CAD to the $USD, our labour costs were lower, so it made Canada a good place in to make products. Now we’re not: we’re too expensive. Our labour costs are now 20-25% higher than those in the USA (see graph, below).

The factories have moved elsewhere and they’re not coming back any time in the foreseeable future. So you have to ask which is the greater advantage for Canadians: being able to buy cheaper goods from China or having good-paying jobs so you can afford better products?

Canadian labour costs risingThe CIBC report notes that, “Canada is no longer a cost-effective location for a host of non-resource-related manufacturing activities. Initially, shutdowns were seen in sectors like apparel and furniture that had earlier hung on in part due to an undervalued exchange rate. More recently, Canada has lagged in attracting or retaining facilities for autos and parts, rail cars, steel mills, and other goods where the competition is now more weighted to US producers… barring a big correction in the currency, or a sharp shift in relative wages, factory growth will subsequently stall.”

Ontario has been hardest hit, the report continues. “Real GDP growth in that province has now trailed the rest of the country for nine straight years—underperformance that has coincided with C$ appreciation. Had Ontario kept pace with the rest of the country, its economy would be almost 10% larger than it is today, making it much easier for the government to dig itself out of deficit.”

Only last month, the HuffPost reported that Canada lost industrial plants at twice the pace of the United States in 2011. The story adds,

Ontario led the decline in industrial plants, shedding 33 of them for a total of 7,853 jobs lost, the report stated. Quebec shed 23 plants, costing nearly 3,000 jobs. Western Canada and Atlantic Canada lost fewer than 2,000 industrial plant jobs each.
But the 14,000 jobs lost at shuttered plants don’t tell the full story. According to Statistics Canada, total employment in manufacturing declined by 50,000 from December, 2010, to December, 2011.
The IIR report suggests the pace of industrial job losses will be similar this year. There are already 76 plants scheduled to close in the next few months in the U.S., while Canada already has four closings scheduled, for job losses totaling 2,700.

At the bottom of the story is a slide show that documents the 10 hardest-hit manufacturing sectors, with the greatest job losses since before the 2008 recession.

Manufacturing isn’t the only sector hit. It’s the classic domino effect. Last month we saw a story on the grim outlook for the air cargo industry: “The immediate future doesn’t look at all rosy for the air cargo business.”

A report from TD Securities just after the recession began stated, “There’s no reason to expect anything good from the Canadian manufacturing shipments report on the 16th, with every single leading indicator that we know of in negative territory.” That picture has not improved significantly. A look at their forecasts for 2012 doesn’t show any improvement predicted. The once robust automobile sector remains flat: “…there is limited upside for new auto sales over the medium term. Perhaps the most difficult challenge facing automakers is the likely absence of any meaningful pentup demand in the Canadian market.” The housing market is at a crossroads: “Overall, we expect sales to record annual average declines of 2.4% and 3.5% in 2012 and 2013, respectively. Prices are poised to suffer a similar fate – annual average declines of 1.9% in 2012 and 3.6% in 2013.”

Furniture sales forecasts have been rewritten with lower expectations. Canadian retail sales in December – the best month of the year – were lower than expected (“There is also a direct connection between the retail shopping numbers and the Personal Consumption Expenditure (PCE) line item in gross domestic product (GDP). PCE accounts for 55% of Canada’s national output.”)

Overall, the economic future does not look rosy for Canada, and especially not for Ontario. Coupled with the Drummond Report on Ontario’s troubled economy and its recommendations for significant cuts to government spending, it looks like we’re in for a few lean years. It’s something for Collingwood Council to keep in mind when working through its next few budgets.