Manufacturing industries poised for continued recovery

Despite a strong dollar, manufacturing industries can expect continued growth in production and profits this year, according to the Conference Board of Canada.

The Spring 2011 edition of the Canadian Industrial Profile – published by the Conference Board of Canada in association with the Business Development Bank of Canada – provides a five-year (2011-2015) production, revenue, cost and profitability forecast. The industries covered include electrical equipment, fabricated metal products, machinery manufacturing, oil and gas support activities, professional services, and textiles and apparel manufacturing.

“The reasons for optimism in these industries include a rebound in demand in the construction and broader manufacturing sectors, as well as a revival in American, European and Asian export markets,” said Michael Burt, associate director of the Conference Board’s industrial economic trends group. “On the downside, the strong dollar poses a threat to industries that depend on exports for growth. This is especially true in some of the manufacturing industries covered in the Spring 2011 outlook, which are largely composed of smaller firms that need to continually invest to compete.”

“Corporate profits are also rising, and this signals an increased willingness by businesses to spend on professional services,” said Jérôme Nycz, the Business Development Bank of Canada’s senior vice-president, strategy and corporate development.

Below are some highlights from the forecast:

• The electrical equipment manufacturing industry can expect profits to more than quadruple this year, to $223 million, according to the report. Rising non-residential construction activity and strong telecom investments, which support demand for wiring, are supporting the industry’s recovery. However, despite this rebound, profits will remain well below their pre-recession peak of $577 million in 2007.

• The fabricated metals industry is currently experiencing double-digit growth in sales, with improving vehicle production and rising investment in the oil patch being key contributors to the growth. However, a more modest 6.9 percent increase in profitability is forecast, bringing profit levels to $1.4 billion in 2011. Surging metal prices are challenging the industry’s bottom line.

• The ongoing global economic recovery will boost export demand and benefit domestic sales of machinery and equipment. Higher commodity prices will increase demand for machinery in the resources sector and create incentives for the industry’s customers to invest in fuel-efficient equipment. At the same time, the strong dollar will affect the price of Canadian products in global markets, especially in an industry with fierce international competitors. Nevertheless, the industry is expected to see almost a 40 percent increase in profits this year, to $920 million – up from just $261 million three years ago.

• Industry activity in oil and gas support is highly dependent on energy prices. Although weak gas prices are detracting from growth, high oil prices are encouraging new drilling activity. As well, the unconventional drilling techniques that are increasingly in use are more intensive users of industry services. The net result is that the industry is experiencing strong growth, and industry profits are forecast to increase from a low of $45 million in 2009 to $225 million in 2011.

• The professional services industry covers a wide range of services, from legal and accounting, to waste management. The architectural and engineering segment of the industry is expected to perform particularly well in the short term, thanks to increasing construction and mining activity. The industry posted a 13 percent increase in profitability last year and profits are forecast to slip by a modest four percent this year to $8.4 billion

• After two years of losses, the textiles and apparel industry is expected to post a modest profit of $13 million in 2011. Production, which grew last year for the first time since 2000, will increase again in 2011. Canadian demand has been rising since 2009, and exports are expected to increase for the second consecutive year.

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