The crisis on Wall Street is hitting the factory floor.
A raft of dismal reports yesterday showed North American manufacturing is tanking, prompting more predictions that Canada will follow the United States into recession.
U.S. industrial production suffered its worst monthly decline in 34 years in September, plunging 2.8 per cent as the global financial crisis caused businesses to retrench and cut back investments on everything from equipment to commodities.
The Philadelphia Federal Reserve Bank said its business activity index skidded in September to its lowest since October, 1990, in what Goldman Sachs economists called “a horrendous report pointing to substantial deterioration in the manufacturing sector.”
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Canadian manufacturing numbers from August indicate a major slowdown was taking hold even before the credit crisis kicked into high gear.
Manufacturing shipments fell 3.7 per cent in August, the largest decline since December, 2007, as weaker global economic activity spilled into Canada.
“The near future for Canadian manufacturers looks grim as August is just the beginning of what we expect to be a rocky road ahead,” Diana Petramala, an economist at TD Economics, said in a note to clients.
At Bank of Montreal, the predictions were even more dire. The bank said Canada is all but certain to suffer a recession alongside its largest trading partner, as consumers on both sides of the border rein in spending amid carnage in stocks, housing and commodities.
At Kelowna, B.C.-based Campion Marine Inc., Canada’s largest boat manufacturer, production is being drastically reduced as U.S. consumers stop buying luxury items.
“The world financial crisis is definitely having an impact. We’re down in production a good 40 per cent or 50 per cent. Right now, it is very difficult to sell a boat to an American,” Brock Elliott, Campion’s general manager, said in an interview.
The family-owned company, which will celebrate its 35th anniversary this year, has taken a number of steps to weather the economic storm. Staff has been reduced to 125 employees from 195, more efficient production methods have been put in place and the company has developed new products to appeal to shifting consumer tastes, including more fuel-efficient and environmentally friendly boats.
And while the recent plunge in the Canadian dollar is also helping Campion reduce costs, Mr. Elliott said this downturn is as severe as the nasty recession of 1982 and noted the company is in for even tougher times if Canadian consumers fall away.
Auto manufacturing in Canada has already taken a pounding, and the sector’s woes are mounting.
Vehicle production slumped 18 per cent in August from year-earlier levels as auto makers put the brakes on Canadian production amid a deep slump in U.S. sales.
Vehicle output plunged again in September by 16 per cent from year-earlier levels.
The tentacles of the auto slowdown spread widely throughout the economy, so auto parts makers have been cutting back – Magna International Inc. trimmed 400 jobs last month at a plant that makes frames for General Motors Corp. pickups and sport utility vehicles.
There’s likely more to come because GM announced more cuts in pickup truck production yesterday, three days after moving up the closing of an sport utility vehicle plant in Janesville, Wis., by two years to this December.
Auto parts maker Johnson Controls Inc. added to the job cuts in the sector yesterday with an announcement that it will close a plant in Whitby, Ont., at the end of the year, eliminating 400 jobs.
Jayson Myers, an economist and president of Canadian Manufacturers and Exporters, believes that things are going to get worse for Canadian goods producers before they get better, as orders from U.S. and foreign customers are cancelled.
“I think going into early next year, it’s going to be extremely challenging here and very much tied to the problems around credit. Companies just can’t finance new orders in the United States, and that’s a major part of our market. So that’s having an impact right now and I think there is worse to come – much worse to come,” he said.
Gene Dunn, chief executive officer of Monarch Industries, a Winnipeg-based manufacturer of hydraulic cylinders and portable cement mixers, said: “I think this is going to affect all industries.”
His company exports about 75 per cent of its products to the U.S. and large equipment makers such as Deere & Co. and CNH Case New Holland. Customers are scaling back orders, Mr. Dunn said. “One customer yesterday said that he didn’t want anything further shipped this year.”
Monarch, with revenue of about $100-million a year and factories in Winnipeg and Winkler, Man., has not reduced its 570-person work force, he said, but might have to do so next year if the slump in orders continues.
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