High Canadian dollar fails to deflate manufacturers prospects: survey

OTTAWA (CP) - A small plurality of Canadian manufacturers say they will be increasing production and hiring more workers despite being hammered by a strong dollar, high commodity prices and most recently, higher interest rates.
A Statistics Canada survey of 3,000 manufacturers conducted in early July found manufacturers expressed only moderately upbeat short-term prospects but surprisingly so, given the perfect storm of bad conditions that have hit the sector in recent months.

The agency found that 21 per cent of respondents expected to increase production in the next three months, as opposed to 15 per cent who indicated they would cut production, a plus six rating.

As well, more manufacturers (17 per cent) indicated they would increase their workforce than decrease it (15 per cent). The vast majority, 68 per cent, said they would keep their workforce at about current levels.

The agency said the six percentage point difference between those looking to boost production and those who would cut was identical to results in the last survey in April, the most positive since October 2004.

But that may be a reflection of how low the sector, which has lost over 100,000 jobs in the first six months of this year, has sunk, rather than a sign that Canada's factories are about to start brimming with activity.

"It's good news that a majority of manufacturers are keeping their heads above water," said Jayson Myers, chief economist with the Canadian Manufacturers and Exporters group.

"But I wouldn't say that 79 per cent manufacturers saying they are not increasing production at a time when global growth couldn't be stronger is actually a very good signal."

In fact, confidence for Canadian manufacturers appears to be a relative measure. They are more confident than last year, when the balance of opinion was gloomy for three of the four business outlook surveys conducted by the federal agency, and neutral in the fourth.

But far less so than in the first quarter of 2000, when 42 per cent said they were ramping up production compared to 10 per cent that said they expected to decrease production.

Still, the positive six-point differential between positive and negative plans on production is a sign that not is all doom and gloom in the sector, said Bank of Montreal economist Douglas Porter.

"Canadian manufacturers are certainly not signalling any major distress signals, even against the backdrop of a 30-year high for the Canadian dollar, US$75 oil prices and a sharp slowdown in U.S. growth over the past year," he noted.

The survey was conducted in the first two weeks of July when the Canadian dollar averaged about 95 cents US and the Bank of Canada raised interest rates by one-quarter of a percentage point. After rising sharply earlier this week, the loonie has fallen off in the past two days and was trading below 95 cents on Friday.

In all, 12 of 21 manufacturing industries were upbeat about production increases, with producers of transportation equipment, chemical products, plastic and rubber products and electrical equipment leading the way.

Also surprising was that the positive production outlook showed less of a regional bias than expected, with manufacturers in Newfoundland, Ontario, Alberta and British Columbia in the plus category, while those in the negative camp included New Brunswick, Quebec and Manitoba.

On the negative side, the percentage of manufacturers that expressed concerns about the level of new orders and unfilled orders increased over the April survey.

© The Canadian Press, 2007