Against the odds, Canadian factories suddenly are among the busiest in the world.
In the United States, President Barack Obama preaches weekly about a manufacturing renaissance, and Germany’s ability to compete with lower cost rivals in Asia continues to astonish. Yet neither of those countries is hiring more factory workers now than Canada, a country burdened by relatively high labour costs, a strong currency and weak productivity.
“Things are flying,” says Kelly Youngdale, who has increased staff at his label-making business in Ottawa to 45, from less than 30 a couple of years ago.
Canada created almost 115,000 manufacturing jobs over the past six months, the most over any similar period on record, according to Statistics Canada. The surge is also the biggest increase among the 34 rich countries that belong to the Organization for Economic Co-operation and Development, says Stéfane Marion, chief economist at National Bank Financial in Montreal. Canadian factories operated at 81.3 per cent of potential capacity in the first quarter, the highest level since the end of 2007, Statistics Canada said in a separate report released Thursday.
The strength in manufacturing defies conventional thinking about Canada’s economy: at a time when factory owners are being told the future lies in spreading their goods throughout emerging markets, factories are getting a boost from sales at home.
For more than a year, the Bank of Canada has cited the country’s poor competitiveness as one of the reasons for leaving interest rates at ultralow levels. In April, Mark Carney, the central bank governor, told an audience in Waterloo, Ont., that the Canadian economy’s immediate prospects were limited because companies do too little business in the fast-growing emerging markets such as China and Brazil. The extent to which Canadian companies “refocus, retool and retrain will do much to determine how rapidly our prosperity grows in the decades ahead,” Mr. Carney said.
But for now, at least, Canada’s factories appear to be benefiting from their notorious contentment with sticking close to home. The jump in hiring occurred with little obvious help from exports. For example, international shipments of machinery and equipment were little changed through April compared with 2011, according to Statistics Canada. Yet factory jobs have increased for six straight months, accounting for 10.4 per cent of Canada’s 17.5 million working population in May, the most in more than a year.
Mr. Youngdale’s Label Innovation Inc., which posted sales gains of 19 per cent in 2010 and 32 per cent in 2011, does almost all of its business in Canada, where the economy has rebounded from the financial crisis better than most of its peers.
Label Innovation does ship about 15 per cent of its production to the U.S., whose economy is growing at an annual rate of about 2 per cent. That’s modest growth, but better than Europe, which is struggling to stay out of recession. China, India and Brazil, the high flyers of the global economy for the past several years, are falling back to earth as the European debt crisis takes a toll on global trade.
“Our Canadian business is strong, while our global business is less strong,” says Mel Svendsen, chief executive of Standen’s Ltd., a Calgary-based maker of vehicle springs and suspensions for trucks and trailers. “A lot of Canadian manufacturers have had to reduce their participation in the U.S. markets with the stronger dollar, so those that are focusing primarily on Canada will show some resiliency and growth.”
In Waterloo, Mr. Carney urged Canadian companies to take greater advantage of the boom in oil, mining and agriculture. The strength of those industries, which are concentrated in Western Canada, represents an outlet while the global economy finds a new footing. Sales of petroleum and coal products increased 4.5 per cent to $7.5-billion in March, the highest level since July, 2008, according to Statistics Canada.
Factories that service the energy sector are “busier than all get out,” says Harvie Andre, the former chief executive of Calgary-based Wenzel Downhole Tools Ltd., which has a standing help-wanted ad for machinists to help craft its drilling equipment.
There’s reason to be skeptical about whether Canada’s manufacturing strength will last.
Mr. Andre, who now works as a consultant for Wenzel, says there are growing worries that the drop in oil prices this year will result in less capital spending by drillers in 2013.
That would be a blow to the manufacturing industry because the recent gains aren’t widespread, nor have they made up for the losses that occurred during the recession. There were 1.8 million factory workers in May, compared with 2.1 million in January, 2007.
“In 21 years in this business, we are treading in waters we have never been in before,” says Darren McDonald, president of Nova Doors and Windows Ltd., a maker of doors and windows based in Dartmouth, N.S. Mr. McDonald says 2011 was “horrible,” and so far this year business is only coming in “dribs and drabs.”
The Canadian market is probably too small to support a significant manufacturing revival. But for now, it’s the best bet for many companies. Guy Bianchi, who runs MR Kitchens, a kitchen-cabinet maker based outside Ottawa, says he hasn’t received an order from any of his U.S. distributors in four years.
But he’s doing fine in Ottawa, thanks to the housing boom, boosting his work force to 55 in the past few months, a 20-per-cent increase. While the housing market likely will cool, Mr. Bianchi is betting the renovation market will remain strong: He plans to build 10 retail outlets over the next eight years stretching from Ottawa to Windsor.
“We want a bigger piece of the pie,” he says.