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Canada’s manufacturers limping back to health

There's a certain amount of enthusiasm today about the latest Statistics Canada figures on manufacturing sales, which have now, finally, returned to their pre-recession levels. It's nice to see, but don't break out the party balloons just yet. Canada's manufacturing sector still bears some deep wounds that aren't even close to healed.

Yes, Thursday's report showed total sales from factories at $50.9-billion on a seasonally adjusted basis in March, up 0.4 per cent from February. Manufacturing sales have now risen in six of the past seven months – lifting the figure to its highest since August, 2008, just before the Lehman Brothers collapse that triggered the global financial crisis and plunged the world into deep recession.

If I can be a glass-half-empty guy for a moment, getting back to pre-recession levels hardly means that everything is fine. The manufacturing sector isn't generating any more sales than it did six years ago. That's six years' worth of potential growth that's still missing.

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If we remove price inflation from the equation, sales volumes in March were still 8 per cent short of the 2008 peak, and 6 per cent below the average for the 12 months preceding the Lehman collapse. And after an encouraging rebound in the earlier stages of the recovery, the gap is no longer closing. Volumes have been essentially flat since the second half of 2011.

A lot of the areas where we have seen a recovery are not what we typically think of as Canada's manufacturing core. For example, petroleum products and food processing are leading the way in post-recession growth. But hardcore durable-goods manufacturers – the automotive sector, wood products, metal manufacturers – are nowhere near their pre-recession levels. Overall, durable-goods sales volumes are down 11 per cent from mid-2008.

Little wonder, then, that manufacturing jobs are still few and far between. The sector shed about 300,000 jobs (about 15 per cent of its workforce) during the recession, and has gained essentially none of them back since.

But one figure stands out in the manufacturing, besides the run of sales gains in recent months, that may provide a glimmer of hope. Unfilled orders (almost all of which are in durable goods) have swelled to nearly $90-billion – more than $20-billion above pre-recession levels. Granted, most of the increase resides in a single segment, aerospace (thanks very much, Bombardier Inc.), but a few other durables segments are also showing stronger unfilled-order numbers, including automotives. It indicates a growing backlog of production to be done – which, typically, is a precursor to rising hiring.

The weaker Canadian dollar and the anticipated strengthening of the U.S. economy should certainly drive manufacturing demand further in the coming months. We may, indeed, be on the cusp of a recovery – and even a modest one would be welcome. But it's equally clear, despite seeing pre-recession sales levels again, that the sector still has a long way to go.

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About the Author
Economics Reporter

David Parkinson has been covering business and financial markets since 1990, and has been with The Globe and Mail since 2000. A Calgary native, he received a Southam Fellowship from the University of Toronto in 1999-2000, studying international political economics. More

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