Manufacturers poised for recovery in production, profitability in 2011
Despite a strong dollar, manufacturing industries covered in the Spring 2011 edition of the Canadian Industrial Profile — such as electrical equipment, fabricated metals and machinery — can expect continued growth in production and profits this year.
Published by the Conference Board of Canada in association with the Business Development Bank of Canada, the Canadian Industrial service provides a five-year (2011-2015) production, revenue, cost and profitability forecast. In addition to electrical equipment, fabricated metal products and machinery manufacturing, the Spring 2011 outlook has forecasts for oil and gas support activities, professional services and textiles/apparel manufacturing.
“The reasons for optimism in these industries include a rebound in demand in the construction and broader manufacturing sectors, as well as a revival in American, European and Asian export markets,” said Michael Burt, associate director of industrial economic trends. “On the downside, the strong dollar poses a threat to industries that depend on exports for growth. This is especially true in some of the manufacturing industries covered in the Spring 2011 outlook, which are largely composed of smaller firms that need to continually invest to compete.”
“Corporate profits are also rising and this signals an increased willingness by businesses to spend on professional services,” said Jérôme Nycz, senior vice-president of strategy and corporate development. “The strongest performing segment of this industry is likely to be architectural and engineering services, as the pace of non-residential construction activity accelerates and high commodity prices drive investments. Information like this should help businesses with their planning.”
The electrical equipment manufacturing industry – which produces products ranging from lighting equipment to electric motors and batteries – can expect profits to more than quadruple this year, to $223 million. Rising non-residential construction activity and strong telecom investments, which support demand for wiring are supporting the industry’s recovery. However, despite this rebound, profits will remain well below their pre-recession peak of $577 million in 2007.
The industry is currently experiencing double digit growth in sales, with improving vehicle production and rising investment in the oil patch being key contributors to the growth. However, a more modest 6.9 per cent increase in profitability is forecast, bringing profit levels to $1.4 billion in 2011. Surging metal prices are challenging the industry’s bottom line.
The ongoing global economic recovery will boost export demand and benefit domestic sales of machinery and equipment. Higher commodity prices will increase demand for machinery in the resources sector and create incentives for the industry’s customers to invest in fuel-efficient equipment. At the same time, the strong dollar will affect the price of Canadian products in global markets, especially in an industry with fierce international competitors. Nevertheless, the industry is expected to see almost a 40 per cent increase in profits this year, to $920 million – up from just $261 million three years ago.
Oil and Gas Support Activity
Industry activity is highly dependent on energy prices, and although weak gas prices are detracting from growth, high oil prices are encouraging new drilling activity. As well, the unconventional drilling techniques that are increasingly in use are more intensive users of industry services. The net result is that the industry is experiencing strong growth, and industry profits are forecast to increase – from a low of $45 million in 2009 – to $225 million in 2011.
Textiles and Apparel
After two years of losses, the textiles and apparel industry is expected to post a modest profit of $13 million in 2011. Production, which grew last year for the first time since 2000, will increase again in 2011. Canadian demand has been rising since 2009, and exports are expected to increase for the second consecutive year.
The Canadian Industrial Profile Service is part of the Conference Board of Canada’s Industrial Economic Trends research. In all, outlooks for 23 industries are completed each year. The publications are available at www.e-library.ca.