Although the presence of big manufacturing companies has dwindled dramatically in Hamilton over the last three decades, manufacturing employment still accounts for about 85,000 jobs in Hamilton, according to the City’s Economic Development Office.
If current economic conditions continue, in combination with an expected stronger US economy and a weaker Canadian dollar, Hamilton can expect a big boost in the manufacturing sector in the near-term. Even though the US economy is the key driver for manufacturing growth, it is clear by the most recent Statistics Canada data that Canadian companies are capitalizing on this growth.
While there is no talk of a large-scale repatriation of manufacturing activity back to North America, the post-recession leaner and smarter North American manufacturing sector is better positioned to stop further bleeding and see modest growth. And a new CIBC World Markets report indicates that many manufacturing industries are ready to reverse a downward trend and outperform in the coming years.
The last decade has been difficult for Canadian manufacturers. The number of Canadian manufacturing firms fell by 20 per cent and the sector’s share of GDP drop to 12 per cent. This is fastest pace of decline ever recorded. The number of firms in the sector declined by 20 per cent, while the number of firms in the rest of the economy grew by 10 per cent.
Six years since the recession, Canadian manufacturing is still 10 per cent below its pre-slump level, making this the weakest recovery on record. With both shipments and production falling in 2013, any recovery had lost momentum. Since reaching bottom in mid- 2009, industrial production has risen by only 10 per cent—half the growth seen in the United States.
On top of the recession, Canadian firms also faced the impacts of a rising Canadian dollar. With more than 70 per cent of Canadian exports shipped to the US during the recession, the slow recovery led to further manufacturing declines in Canada.
The CIBC report found that, “De-industrialization is not a uniquely Canadian story, but a common reality in the developed world. US manufacturing accounted for 16% of the economy in the 1970s, whereas today it accounts for 13%.”
With currency and market conditions improving, the same CIBC report did a sector analysis, examining the market characteristics and actions taken during the dark days of the last decade to assess which sectors adapted best and are poised to outperform economic growth in the coming years. Industries ranked as having the best growth prospects are: wood products, primary metal, machinery, aerospace, computer and electronics, plastics and rubber, and paper. Many of these sectors have a strong presence in Hamilton.
Surprisingly absent from the top of the CIBC rankings is the food manufacturing industry. This is another key manufacturing sector in Hamilton with local growth in meat and vegetable oil processing, commercial bakeries and packaged food industries. Its absence from the CIBC rankings may be because food processing in recent years has primarily served the domestic market. Furthermore, since food manufacturing has done better than most of its peers, it has not had to increase its productivity as fast as others, only showing a slight gain of two per cent since 2009. With domestic manufacturing already taking up so much of the Canadian market, the food manufacturing sector will have to nurture its export markets in order to find growth.
So, yes, that is light at the end of the tunnel, and it’s not a train. The manufacturing industry in Hamilton and the rest of Canada may have, finally, seen the end of its hemorrhaging, with Hamilton well poised to take advantage of, and benefit from, the looming revival in key sectors.
Scott Reeves is President & Chief Executive Officer at Reeves Financial Services. He is an award-winning financial planning professional and former radio host, with nearly 20 years of experience in the financial services industry.