A timely and lucid report that TD Economics released this morning is well worth a read by anybody interested in the manufacturing sector in this country.
The report, written by economics strategist Millan Mulraine and entitled Whats behind the Canadian manufacturing recession? includes some compelling observations that have largely been ignored in recent debates about Canadas ailing manufacturers.
For one, the report places the decline of Canadian manufacturing, both in terms of job share and output share of the overall economy, in the context of a global phenomenon that has seen similar declines in all industrialized countries in recent years. For another, it shows that the much-bemoaned currency effect, while significant, has been generally overstated.
More tellingly, the report points out that labour productivity gains in manufacturing have outpaced those in the general economy, but that these gains havent been enough to keep up with the United States.
Why? Mulraine notes that while the rising loonie makes it cheaper for companies to invest in now-lower-priced equipment and technology, in fact capital expenditures per employee in the manufacturing sector have badly lagged other businesses. While there is evidence to suggest that the Canadian business community as a whole may not have fully exploited this opportunity [provided by currency appreciation], the performance of the manufacturing sector in this regard has been worse than the national average.
Does this matter? Given that (as the report notes) U.S. manufacturing productivity has risen by more than 30% since 2001 while Canadas has risen by not quite 10%, and that over the same period unit labour costs in the States have declined while Canadas have gone upwell, as Mulraine concludes: We expect the adjustments in the Canadian manufacturing sector to continue.