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Traffic backs up on the Canadian side Ambassador bridge between Windsor, Ont., and Detroit in this 2006 file photo. (Jason Kryk/The Canadian Press/CP)
Traffic backs up on the Canadian side Ambassador bridge between Windsor, Ont., and Detroit in this 2006 file photo. (Jason Kryk/The Canadian Press/CP)

Economy Lab

Plenty of bright spots in manufacturing report Add to ...

Even though manufacturing sales rose just 0.6 per cent in the last month of 2011 -- less than a third of what Bay Street analysts had pencilled in -- there were still some positives in Statistics Canada's report.

Total sales for December were $49.9-billion, below a $53-billion high-water mark reached in July, 2008, but the highest since October of that year. In other words, they are now just shy of pre-recession levels, thanks to gains in five of six months. In fact, a third of Canada’s 21 manufacturing sectors are now at or beyond where they were just before the downturn hit, Statscan said.

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And for 2011 as a whole, factory sales increased by a healthy 7.8 per cent, the Statscan data show. Plus, in December, total sales by volume rose 1.2 per cent, not stellar but decent, even as a drop in prices for energy products pulled the total value of shipments down. Durable goods sales rose 2.1 per cent, and car and truck manufacturers gained by almost 3 per cent -- to the highest level since late 2007.

That in itself is a very strong signal that the rebound in the crucial U.S. economy, which has been led by manufacturers, is giving a big boost to industry on this side of the border.

However, most economists were quick to note that none of the above changes the fact that Canada faces big headwinds this year, as the U.S. grows but at a slower pace than we’re used to, and the endless European crisis casts a pall over the global recovery. There are already signs that Canadian exporters, saddled with a strong currency and competitiveness issues like higher labour costs compared with their U.S. counterparts, face a tough year ahead even as the U.S. recovers. (Inventories fell in December for the first time in 15 months, usually a sign production will need to ramp up. The problem is that unfilled orders also fell, by 1.6 per cent, as did new orders, by 2.8 per cent.)

Dina Cover of TD Economics said in a research note after the report that her shop sees manufacturing output growing just 2.3 per cent this year, a far cry from the total gain for 2011.

This is why policy makers and economists have urged Canadian executives to do all they can to diversify away from the U.S. into faster-growing emerging markets and, arguably even more important, increase their productivity and innovation so they can compete with all the American factories that are attempting to do the same thing.

“Whether the gains are temporary and will succumb to a deterioration in export competitiveness through an elevated currency and weak productivity growth, or whether the manufacturing base has adjusted to such factors and is instead being sustainably led by more nimble niche-oriented players remains open to debate into 2012,” Scotia Capital economists Derek Holt and Dov Zigler wrote Thursday.

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