Conference Board discusses future of manufacturing in Canada

After declining throughout the second half of last year, the Conference Board of Canada’s Leading Indicator of Industry Profitability has yet to show any real signs of improvement, according to a statement by the not-for-profit applied research organization. Following revisions in the underlying data, the indicator remains virtually unchanged from where it was last November.

“The lack of significant job creation in recent months, the strong Canadian dollar, and the sideways movement in the stock market are preventing an improvement in the outlook for profitability,” the Conference Board said. “The good news is that the outlook for the majority of industries is still positive, with only 11 of the 49 industries covered here recording declines in their indexes in March. This has been the situation now for three consecutive months.”

The oil extraction industry’s indicator posted the largest gain. The rise in the price of oil over the past few months is expected to translate into stronger profits for oil extraction companies. Higher oil prices have also driven higher gas prices at the pump.

The Canadian dollar is strongly linked to fluctuations in oil prices. Therefore, as oil prices increased in the first quarter of the year, so did the value of the loonie compared with the currencies of Canada’s main trading partners. This is putting pressure on Canadian exporters, particularly in the manufacturing sector, the Conference Board pointed out. Of the 11 industries that saw their profitability indexes decline in March, seven were from this sector.

Still, the outlook for some segments of the manufacturing sector continues to improve, the Conference Board said. For example, the motor vehicle assembly and motor vehicle parts industries continue to see gains in their profit indexes. In particular, the pace at which the parts industry’s index has been rising has accelerated considerably in recent months.

In a recent commentary by the Conference Board’s Michael Burt, director of the Canadian Industrial Outlook, Burt concludes that the manufacturing industry in Canada has a future, but it will have to change what it does, and how it does it. Focusing on high-value activities and products, taking advantage of low-cost inputs from developing economies and increasing the amount of services that manufacturers provide with their products are just some of the strategies he suggests.

“Canada’s manufacturing sector is and will still be here for many years to come, but not in its current form,” said Burt. “The mix of what we produce will continue to change, and the performance among the manufacturing segments will vary. Growth in manufacturing employment growth may not be robust as firms concentrate on boosting productivity to stay globally competitive. It will not be manufacturing as we knew it a generation ago, but yes, there will be a manufacturing sector in Canada.”

For more on Canada’s manufacturing sector, read Burt’s commentary, Yes, There is a Future for Manufacturing in Canada.