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Leaner, meaner Canadian manufacturing poised for better times: report

OTTAWA - A new economic report on Canada's troubled manufacturing sector suggests that factories that have weathered the storm have positioned themselves for better times.

The paper from CIBC deputy chief economist Benjamin Tal points out that the sector — one of the most important to Canada's economy and especially Ontario's — has had a terrible time of it since the turn of the century, and even worse since the 2008-09 recession.

Since the recent crisis, manufacturing is still 10 per cent behind pre-slump highs, while one-fifth of firms just simply disappeared.

And it has gone from representing 16 per cent of the economy about 10 years ago to only 12 per cent today. That's a worse record than in the U.S., where the sector has also been in decline.

The sector has also seen a steady decline in workers, dropping another 42,000 jobs during the December 2012 to December 2013 period.

But Tal says the pain has not been for naught. A lot of producers have spent the time not just licking their wounds, but getting leaner and meaner and preparing for the recovery. The weaker loonie, which was responsible for manufacturing's revival in the 1990s, is also helping.

He notes productivity has risen by nine per cent in five years between 2009 and 2013, compared with only about seven per cent for the entire decade of the 2000s. As well, per unit labour costs, while still higher than those in the U.S., are coming down.

"There is no denying that the post-recession leaner and smarter North American sector is better positioned to stop the bleeding," he concludes.

"As for Canadian firms, the long and painful adjustment is starting to pay off, with many industries better positioned to take advantage of the weaker dollar to regain positions in U.S. markets and to better integrate into global supply chain opportunities."

Manufacturing did start the year strongly with a one per cent surge from December, although analysts mostly attributed to the sizable January gain to make-up from the previous month's bad weather-related dip.

Tal forecasts that the industries with the best chance of a robust bounce-back in the next few years will be wood products, followed by primary metal, machinery, aerospace, and computer and electronic suppliers.

At the bottom of the list is petroleum and coal, where productivity improvements have lagged other Canadian manufacturing industries.

The Canadian Press

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