Manufacturers sitting on cash as fewer orders trickling in from U.S. customers
October 18, 2011 by Sunny Freeman The Canadian Press
Canadian manufacturers and exporters are holding back on hiring new workers and making new investments as they cope with fewer orders from the United States.
CEO Jayson Myers of the Canadian Manufacturers and Exporters association said that exporters are trying to cut costs because customer demand from the U.S. is weaker than expected.
“They’re certainly conserving more cash and they’re holding back on some of those investments they were expecting to be making at the beginning of the year,” Myers told an economic conference. “They’re holding back on employment as well.”
That’s bad news for the 1.4 million Canadians still out of work because they won’t get a crack at new jobs until businesses expand and feel confident again about their growth prospects.
“We will need to see stability in markets internationally before that business confidence comes back,” Myers said.
There are signs the U.S. economy could be heading back into a recession as Canada’s largest trading partner copes with high debts, falling consumer confidence and a weak housing market. That’s also hitting business confidence and making companies there less likely to spend.
Weaker U.S. demand hits the prospects of Canadian exporters of everything from auto parts and cars to metals, chemicals, plastics, lumber and newsprint.
Myers said companies in the automotive and aerospace industries, centred in Ontario and Quebec, have been particularly hard hit because of their reliance on the U.S. market.
One of the major problems is that the economic turmoil is making lenders more wary of doling out financing for U.S. companies importing products.
Some are even turning to Canadian manufacturers for financing help, Myers said. The lack of funding will continue to drag on order books.
During the 2008-2009 recession, a global credit crunch made it harder for companies and consumers to borrow money to finance purchases, intensifying the economic downturn.
The economic outlook is made worse from a potential decline in demand due to deteriorating economic conditions in Europe, as eurozone countries attempt to get their debt loads in order, combined with weaker prices for oil and other commodities.
Meanwhile, Canadian exporters are also grappling with the effects of a strong Canadian dollar, which makes Canadian goods and labourers more expensive to American customers.
That makes it difficult to attract investments and keep jobs in Canada.
For automakers and other manufacturers, Canadian-made exports and workers will appear more attractive if the loonie moves lower.
But it also highlights the growing fear of another global recession, which reduces demand for their goods.
Bank of Montreal economist Douglas Porter says Canadian exporters will continue to face a twin challenge of a strong loonie and sluggish U.S. customer demand.
He predicts the loonie will likely remain close to parity in the next few months, which will restrain the manufacturing sector “even with the step back the currency has taken in recent weeks.”
Myers said he is telling members to build in expectations of a loonie at par, if not above.
For manufacturers, he added, the extreme volatility in the Canadian dollar is more of a problem than a high currency because it makes it difficult for companies to plan, buy materials, set contracts and pricing.