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The Globe and Mail

Factory shipment figures will depend on strong auto market

Canada's economy is struggling, but the manufacturing sector is expected to show some growth when the factory shipment figures for August are released Tuesday.

Still, most of the improvement – if it happens – may be because of increased car production and petroleum exports, rather than any significant broad-based recovery among manufacturers.

So far this year, the manufacturing numbers have shown declines in five of seven individual months, a sluggish showing at best. The consensus projection from economists is that August will see a small gain of roughly 0.5 per cent, a turnaround from a 1.5-per-cent drop in July.

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Among the most optimistic projections is that of Royal Bank of Canada, which is expecting a 1.2-per-cent rise. RBC economist Nathan Janzen said there are indications that automotive production has been on the rise in recent months, and that may boost the overall manufacturing numbers. He also said the aerospace sector could contribute to the rebound, as it will be bouncing off a 22-per-cent fall in production in July.

Mr. Jenzen said petroleum and coal production is also expected to buoy the numbers, as some refineries that were shut down in the second quarter came back into action.

Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc., is less optimistic. He expects manufacturing shipments to show a 0.5-per-cent gain in August, but only because of the auto market.

If that strength in the auto sector doesn't come through, there could be yet another decline in overall manufacturing shipments, he said.

The main reasons for the poor manufacturing performance this year is the weakness of markets outside of North American, and the persistent strength of the Canadian dollar, Mr. Porter said. On top of that, capital spending in the United States has been down, and that means less demand for products made by Canadian manufacturers, he said.

Toronto-Dominion Bank economist Francis Fong noted that longer-term trends in the manufacturing sector have been fairly positive over the past couple of years.

But the sector is still unlikely to surge in any dramatic way, Mr. Fong said. "Our manufacturing is very much export oriented, so weak global demand and a high dollar still continue to impact it … The headwinds are still very significant."

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