January 6, 2014

U.S. and Canadian plant usage rates hover near level to drive investment (Part 1)

Since January 2000, the total number of manufacturing jobs in Canada has fallen from 2.2 million to 1.7 million, a drop of 500,000.

In the U.S. over the same period, the swing has been from 17.3 million to 12.0 million, yielding a net figure of -5.3 million.

How have the two countries stacked up versus each other? The easiest way to show this is graphically and through the use of indices.

See the accompanying chart.

January 2000 is set as the base period equal to 100.0 for both countries. The employment level in each month thereafter is expressed as a ratio of the “opening” month.

In both the U.S. and Canada, there have been dramatic declines. The U.S. curve began to dip almost immediately.

The Canadian level stayed nearly the same through 2005 before trending downward until 2010. Since then, manufacturing employment in Canada has leveled off.

Over the past several years in the U.S., the number of manufacturing jobs has been edging higher again, although it remains deeply depressed.

The graph does highlight one surprising fact. While there is justification in Canada for being worried about the downward trend in manufacturing jobs, we have managed to maintain a relatively better performance than in the U.S. throughout the last 13 years.

That feat has been achieved despite an increase in the value of the Canadian dollar versus the U.S. greenback. Over a period of nearly five years, from early 2003 through late 2008, the “loonie” (i.e., the affectionate name for Canada’s currency) moved up in value from 63 cents U.S. to parity and slightly beyond.

More recently, with commodity prices in a funk and U.S. economic growth setting the pace worldwide, the Canadian dollar has fallen back into the mid-90 cent range.

A higher-valued Canadian dollar inhibits the ability of manufacturers to make export sales. A lower-valued home currency has the opposite effect.

Several factors have contributed to the better performance of manufacturing employment in Canada than in America.

For starters, Canada simply did not experience as severe a recession as occurred south of the border.

Furthermore, the construction sector can take some credit. Building product manufacturers (BPMs) have consistently received a boost from new home starts that have generally (2009 was the exception) been elevated and higher than expected.

BPMs have also been able to rely on demand for their products from mega projects in the resource sector. This provides further proof that raw materials development is important for the country as a whole and not just in the province where the extraction takes place.

Another obvious sector deserves special mention as a major source of manufacturing-related employment — motor vehicles and parts.

The latest 12-month moving total of motor vehicle sales in Canada reached an all-time high of 1.766 million units.

There’s been an interesting and remarkable shift in product mix among types of vehicular locomotion.

Thankfully, a dramatic drop-off in sales of passenger cars is being more than offset by a surge in demand for “vans, trucks and buses”.

Autodata Corporation has calculated that November’s car and truck sales in the U.S. were 16.4 million units (annualized), the highest monthly rate since the recession.

Year-to-date light vehicle sales in the U.S. are now +8.9%, comprised of passenger cars at +5.9% and light trucks at +11.8%.

To be continued in Economy at a Glance Part 2

Motor vehicle sales in Canada
(12-month moving averages annualized)

Data source: Statistics Canada. Chart: Reed Construction Data - CanaData.

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