Industry Canada report paints gloomy picture of manufacturing

As the Harper government touted the "good news" of a big rebound in Canada's manufacturing sector, an internal report painted a more pessimistic picture.

A Feb. 4 report by Industry Canada suggests that some manufacturing jobs have disappeared forever, investment in equipment is weak and that there's been a jobless recovery even in areas where manufacturing has rebounded somewhat.

The findings are from an analysis of long-run trends in manufacturing prepared for the deputy minister and obtained by CBC News under the Access to Information Act.

"Industries highly sensitive to the exchange rate have shrunk, while a significant drop in the number of establishments points to a permanent loss in manufacturing capacity," says a censored summary of the 18-page document prepared by Philip Jennings, a senior bureaucrat.

"Manufacturers continue to underinvest in their stock of machinery and equipment, threatening future productivity growth. The falling dollar will not help this issue," the report says.

The analysis also notes that manufacturing overall has rebounded since the 2008 recession, but "there has not been a corresponding increase in employment, which remains stable at 1.7 million."

The report draws on released data well known to economists, who say the conclusions are no surprise. But the document does offer a darker view of the future of the manufacturing sector than many of the public statements of Conservative cabinet members such as Industry Minister James Moore.

'Tremendous growth'?

Moore told a House of Commons committee in December, for example, about the "tremendous growth" in manufacturing since the recession, touting the "very good news" of a rebound in sales. His presentation did not note the sector has not produced new jobs, and is under-investing in research, development and new equipment.

With a severe drop in the price of oil and an election looming this fall, the Conservative government has reoriented some of its economic policies away from resources and toward manufacturing, which is centred on vote-rich Ontario and Quebec.

It's clear that they're worried about a permanent loss of manufacturing capacity.  – NDP industry critic Peggy Nash

The 2015 budget extended a tax break for the sector, for example, allowing firms to write off their investments in equipment for a 10-year period rather than the two-year period that expires this year.

The government has also been touting its investments in the auto sector, which the Industry Canada report notes is a "key driver" of growth post-recession, alongside the aerospace industry.

But there has been a net loss of 212,000 manufacturing jobs in Ontario and 97,000 in Quebec since 2004, the document says.

"The negative tone … is quite interesting, particularly given the positive outlook we typically hear from Ottawa on manufacturing," said Mike Moffat, an economics professor at Western University's Ivey Business School in London, Ont. Moffat is also an adviser on Liberal Leader Justin Trudeau's economic council.

Can't compete on labour costs

Michael Holden, an economist in Calgary with the Canadian Manufacturers and Exporters, called the report a "pessimistic view of how things have been going in the last few years, in the post-recession sense."

"The current economic challenges are discouraging investment, and the low dollar is making it more expensive to do so."

But he said many of the manufacturing jobs that Canada has shed are low-skill and low-paid, and that the country can't compete on labour costs with countries such as China or Vietnam.

"Certain types of jobs are not going to come back to Canada," he said in an interview. "The type of manufacturing we do in Canada tends to be a lot more automated."

Holden praised the Conservative government in particular for implementing the new 10-year capital-cost tax break, and suggested a low Canadian dollar will help boost manufacturing exports, providing companies more revenue to cope with the higher cost of equipment imports.

New Democrat industry critic Peggy Nash said the report undermines the Harper government's steady-as-she-goes approach to the economy.

"While the government seems to keep trying to reassure Canadians that everything is fine, it's clear that they're worried about a permanent loss in manufacturing capacity."

Jake Enwright, a spokesman for Moore, acknowledged that the number of manufacturing jobs in Canada has remained the same for five years, saying employment has "stabilized."

But the government has programs to encourage manufacturing investment, such as the automotive innovation fund created in 2008 with $1 billion to invest by 2016, and it has cut corporate tax rates, he said.

And free-trade deals with Europe and South Korea will help to open markets with 900 million consumers, he said. "Those are massive opportunities for manufacturers here in Canada that don't exist in other jurisdictions around the world," Enwright said.

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