A Weak Global Economy Strong Loonie Impacting Manufacturing

Regional News

Business Thunder BayTHUNDER BAY – Business News – “A weak global economy and a strong Loonie have weighed somewhat on the broader sector and contributed to a flat PMI reading compared to November,” stated Craig Wright, senior vice-president and chief economist, RBC. “That said, as the cloak of uncertainty is removed from the global economy in the coming months related to fiscal policy in the U.S. and elsewhere, we expect that demand for Canadian exports will rise, as will investment and hiring across the economy.”

Global Economy and the ‘Fiscal Cliff’

The United States has stepped back from the fiscal cliff. President Obama stated, “Leaders from both parties in the Senate came together to reach an agreement that passed with overwhelming bipartisan support today that protects 98 percent of Americans and 97 percent of small business owners from a middle class tax hike.  While neither Democrats nor Republicans got everything they wanted, this agreement is the right thing to do for our country and the House should pass it without delay”.

The White House says, “The agreement passed by an overwhelming bipartisan majority in the Senate last night permanently extends the middle-class tax cuts and also extends credits for working families. It provides additional measures to protect families and promote economic growth. The lower tax rates, an expanded Child Tax Credit, and marriage penalty relief  will provide certainty for 114 million households and together will prevent the typical family of four from seeing a $2,200 tax increase”.

In Europe, The Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (popularly known as the “fiscal compact”) enters into force on 1 January 2013 following its ratification by Finland.

Impact on Canadians Manufacturers

Prime Minister Harper says, “The international community has taken note of our success this year: Forbes magazine has ranked Canada as number one in its annual review of the best countries for business; for the fifth year in a row, the World Economic Forum has rated Canada’s banking system as the world’s soundest; and both the IMF and OECD expect Canada to be among the strongest growing economies in the G-7 next year.”

Key findings from the RBC December survey include:

  • RBC PMI remains at lowest reading since data collection began in October 2010;
  • output broadly unchanged from November, while new orders increase only marginally; and
  • slowest rate of employment growth since January.

Ontario Premier Dalton McGuinty comments, “Our strong plan for Ontario has created good jobs, it’s made us a leader in education and it’s making our province the healthiest place to grow up and grow old. Staying on track to eliminate the deficit will help us meet the challenges ahead as we continue to build a brighter future for our children and grandchildren.”

Canadian manufacturers gained a larger volume of new orders in December. That came after basically no change reported during November.

RBC reports, “Firms commented on greater client demand and the launch of new products. That said, the rate of growth was only marginal, with new export work falling for the second month running”.

“Despite the rise in new orders, output was broadly unchanged from one month earlier. Nonetheless, the flat production trend was an improvement from a modest reduction in the previous survey period. Concurrently, backlogs of work were depleted at a marked pace and stocks of finished goods rose, albeit the rate of inventory accumulation was only marginal”.

The RBC Canadian Manufacturing Purchasing Managers’ Index™ (RBC PMI™)indicated only a marginal rise in new order volumes and broadly no change in output in December. A monthly survey, conducted in association with Markit, a leading global financial information services company, and the Purchasing Management Association of Canada (PMAC), the RBC PMI offers a comprehensive and early indicator of trends in the Canadian manufacturing sector.

The headline RBC PMI – a composite indicator designed to provide a single-figure snapshot of the health of the manufacturing sector – remained at 50.4 for the second month running in December, signalling only a marginal improvement in manufacturing operating conditions. The RBC PMI, meanwhile, averaged 50.7 over the fourth quarter as a whole, down from 52.8 in the third quarter and was the lowest quarterly reading since data collection began inOctober 2010.

The RBC PMI found that new orders increased in December, partly reflecting greater demand and new product launches, but output levels were broadly unchanged from November. Meanwhile, employment continued to increase, but the rate of job creation was at an 11-month low and input prices rose at the slowest pace since July.

Impact on the Business Environment in Canada

Corporate Canada has found itself in the challenging position of being unable to find candidates with key skills, just as it predicts continued increases in business activity for 2013. This is a key conclusion in a new report from Hays Canada which collected data from more than 3,000 Canadian companies during November 2012. The data shapes insights into projected hiring challenges/trends, business optimism, salary levels, and benefit packages from the Hays Canada’s 2013 Compensation, Benefits, Recruitment and Retention Guide.

“In 2012, as the economy began to recover, many companies significantly ramped up recruitment to refill roles that were lost during the recession. Hays expects hiring practices in 2013 to be largely strategic in nature where professionals with key skill sets will cost a premium,” said Rowan O’Grady, President Hays Canada. “Increased efficiencies and improved productivity is the goal of companies today and individuals who can help make that happen in organizations are in high demand.”

According to the survey, 62 per cent of Canadian companies expect business activity to increase in 2013. At the same time talent mismatch will persist 78 per cent will experience moderate to extreme challenges recruiting top talent.

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