Canada Manufacturing Sales: December Sees Another Rise, Almost To Pre-Downturn Levels
OTTAWA - Canada's key manufacturing sector closed out last year on a modest upswing, recording a 1.2 per cent gain in output for December that is regarded as positive to economic growth.
Bottom line dollar-value sales were disappointing, however, rising only 0.6 per cent when economists had pencilled in a two per cent pop.
But much of the disappointment was due to price effects. Sales in volume terms grew at twice the rate, which should add to gross domestic product growth in the fourth quarter, said analysts.
"I call it a decent but unspectacular result," said Douglas Porter, deputy chief economist with BMO Capital Markets.
"The figure that feeds into gross domestic product is actually volume of sales, so based on our early indications it looks like December GDP will show a nice little gain."
Porter said he now believes overall fourth-quarter growth will come in at about 1.8 per cent, which would constitute positive, if modest, momentum for the economy.
Following the second-quarter disruptions from the Japanese disaster and other one-off events, manufacturing in Canada has been on a solid run since the summer.
By one analysis, volume sales grew by almost 10 per cent in the fourth quarter, and 13.3 per cent in the third.
"It's a bit puzzling," said Scotiabank's Derek Holt. "The whole theory that the Canadian manufacturing sector would be pummelled by the strong dollar hasn't been borne out."
One reason is that the U.S. economy has been much stronger than anticipated. Data this week continued to show strength in the U.S. factory sector, which is closely integrated with Canada's, and a modest recovery in the battered housing sector.
Also on Thursday, the U.S. reported its initial jobless claims continued to fall, hitting levels not seen since March 2008, a strong indicator that January's strong job creation performance was not a one-month aberration.
Holt cautioned that longer-term indicators for Canada's factory sector were not as positive. New orders fell sharply by 2.8 per cent and unfilled orders fell by 1.6 per cent, which could suggest softer months ahead.
The key weakness in December's manufacturing data was the 5.6 per cent setback among petroleum and coal product producers to $6.9 billion, although half of that loss was due to a weaker dollar exchange.
Overall, sales increased in 12 of 21 industries representing two-thirds of manufacturing, and seven subsectors climbed past pre-recession levels.
In dollar terms, manufacturing sales rose to $49.9 billion in December, the fifth increase in six months, and within shouting distance of the $50.2 billion recorded in October 2008, when the economic downturn began.
By industry, motor vehicle manufacturers rose 2.9 per cent in December to $4.3 billion, the highest monthly total since November 2007. Motor vehicle parts industry rose 5.5 per cent to $1.9 billion.
The transportation equipment industry as a whole had the largest dollar gains of any industry, with a 3.7 per cent increase in sales to $8.5 billion. This was the seventh consecutive monthly increase.
Plastics and rubber products sales increased 7.5 per to $2.1 billion, their highest level since August 2007. Greater sales volumes were entirely responsible for a 2.7 per cent increase in the primary metal industry to $4.2 billion, the third consecutive monthly gain.
For 2011 as a whole, manufacturing sales amounted to $571 billion, up 7.8 per cent from 2010, with higher sales in the petroleum and coal products, primary metal, machinery and transportation equipment industries.5 ECONOMIC LANDMINES THAT COULD IMPACT CANADA IN 2012
1. RISING HOUSEHOLD DEBT
Canada's household debt burden climbed to yet another record high in the third-quarter, prompting Bank of Canada Governor Mark Carney to call it <a href="http://www.montrealgazette.com/business/Mark+Carney+again+sounds+alarm+rising+Canadian+household+debt/5856418/story.html" target="_hplink">"the greatest risk to the domestic economy</a>." At 150.8, <a href="http://www.reuters.com/article/2011/12/14/us-economy-debt-idUSTRE7BC2DY20111214" target="_hplink">Canada's debt-to-income ratio is now higher than in the U.S. or the U.K</a>. Meanwhile, household net worth fell, which, as many observers have warned, has made Canadians more vulnerable to adverse economic shocks.
2. SLUGGISH CONSUMER DEMAND
Though BMO's Doug Porter maintains that low interest rates and modest job growth should prevent household debt issue from becoming "a clear and present danger to the outlook in the year ahead," he predicts that the debt burden is likely to increase. Unlike in the U.S., Canada's consumer recession was "very mild," leaving scant room for growth in consumer spending, he says. "At best, we see consumer spending growing in line with income next year," he said. "We've actually pegged it a little bit below income growth next year ... at less than two per cent in 2012." (FREDERIC J. BROWN/AFP/Getty Images)
3. EUROZONE INSTABILITY
When TD cut its 2012 outlook for the Canadian economy earlier this week to 1.7 per cent, the bank cited a deepening fiscal crisis in the eurozone as one of the primary factors. More bearish than BMO, which on Thursday held its expectation for Canada's GDP growth next year at two per cent, TD is forecasting "a deterioration of financial conditions and a significant European recession in the first half of next year." "<a href="http://www.td.com/document/PDF/economics/qef/qefdec11_can.pdf" target="_hplink">A deepening recession in the region will exert a significant drag on the global economy</a>," the bank maintained. "Canada will be negatively impacted through weaker commodity prices, confidence and export growth. Labour markets will also soften as a result." (ERIC FEFERBERG/AFP/Getty Images)
4. CHINA LOSING STEAM
The signs are abundant that the world's largest economy is cooling. Mounting local government debt and slowdowns in everything from industrial production to <a href="http://www.cbc.ca/news/business/story/2011/12/09/china-economy-slows.html" target="_hplink">the housing market has led many to predict softer economic growth in 2012</a>. "<a href="http://www.npr.org/2011/12/13/143623874/after-boom-chinas-property-market-heads-lower" target="_hplink">Real estate is a locomotive industry that leads at least 58 other industries</a>," Cai Weimin, who runs a real estate think tank in Shanghai, told NPR. "Doomsday probably won't come true in 2012, but for the Chinese economy, 2012 will be a very tough year. (Aaron tam/AFP/Getty Images)
5. GROWING INCOME GAP
As Canada's rich-poor divide widens, some experts warn that the concentration of wealth at the top of the income distribution and stagnating wages for everyone else could be a drag on the economy. Though Canada's income gap is not as pronounced as in the U.S., Canadian Centre for Policy Alternatives economist Armine Yalnizyan argues that the growing divide is bad for business all the same. <a href="http://www.huffingtonpost.ca/news/mind-the-gap" target="_hplink"><strong>Mind The Gap: Our examination of Canada's growing income divide</strong></a> "<a href="http://www.canadianbusiness.com/article/39123--inequality-is-bad-for-business" target="_hplink">Real growth in purchasing power has been restricted to a small fraction of Canadian consumers</a> in what is already a small market," she maintained in an op-ed in Canadian Business magazine. "Throttling aggregate demand slows the economy for everyone." Anne Golden, president and CEO of the Conference Board of Canada, echoes this sentiment. "Growing inequality distorts consumer patterns," she told The Huffington Post in a recent interview. "Most businesses, except maybe for Porsche [dealerships], rely on rising purchasing power of the many, not the few, to deliver growth and profits." (ADRIAN DENNIS/AFP/Getty Images)