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Fewer US orders: Manufacturers sitting on cash

Canadian manufacturers and exporters are holding back on hiring new workers and making new investments as they cope with fewer orders from the US.


October 12, 2011
by CANADIAN PRESS

TORONTO: Canadian manufacturers and exporters are holding back on hiring new workers and making new investments as they cope with fewer orders from the US.

Jayson Myers, president and CEO of Canadian Manufacturers & Exporters (CME), said that exporters are trying to cut costs because customer demand from the US is weaker than expected.

“They’re certainly conserving more cash and they’re holding back on some of those investments they were expecting to be making at the beginning of the year,” Myers told an economic conference. “They’re holding back on employment as well.”

That’s bad news for the 1.4 million Canadians still out of work because they won’t get a crack at new jobs until businesses expand and feel confident again about their growth prospects.

“We will need to see stability in markets internationally before that business confidence comes back,” Myers said.

There are signs the US economy could be heading back into a recession as Canada’s largest trading partner copes with high debts, falling consumer confidence and a weak housing market.

That’s also hitting business confidence and making companies there less likely to spend.
Weaker US demand hits the prospects of Canadian exporters of everything from auto parts and cars to metals, chemicals, plastics, lumber and newsprint.

Meyers said companies in the automotive and aerospace industries, centred in Ontario and Quebec, have been particularly hard hit because of their reliance on the US market.

One of the major problems is that the economic turmoil is making lenders more wary of doling out financing for US companies importing products.

Some are even turning to Canadian manufacturers for financing help, Myers said. The lack of funding will continue to drag on order books.

During the 2008-2009 recession a global credit crunch made it harder for companies and consumers to borrow money to finance purchases, intensifying the economic downturn.

The economic outlook is made worse from a potential decline in demand due to deteriorating economic conditions in Europe, as eurozone countries attempt to get their debt loads in order, combined with weaker prices for oil and other commodities.

Meanwhile, Canadian exporters are also grappling with the effects of a strong Canadian dollar, which makes goods and labourers more expensive to American customers. That makes it difficult to attract investments and keep jobs in Canada.

However, the loonie has fallen about 10 cents in recent weeks as investors flock to the perceived safe haven of the US dollar amid the growing economic uncertainty.

It had floated back up from around 95 cents to 98.41 cents US on top of a gain of just under a cent on Oct. 11.

For automakers and other manufacturers, Canadian-made exports and workers will appear more attractive if the loonie moves lower. But it also highlights the growing fear of another global recession – which reduces demand for their goods.

Bank of Montreal economist Douglas Porter says Canadian exporters will continue to face a twin challenge of a strong loonie and sluggish US customer demand.

He predicts the loonie will likely remain close to parity in the next few months, which will restrain the manufacturing sector “even with the step back the currency has taken in recent weeks.”

Meyers said he is telling members to build in expectations of a loonie at par, if not above.
For manufacturers, he added, the extreme volatility in the Canadian dollar is more of a problem than a high currency because it makes it difficult for companies to plan, buy materials, set contracts and pricing.

© The Canadian Press 2011