More job losses expected in battered manufacturing sector

Canada’s battered manufacturing sector shed 38,000 jobs last month and has lost nearly 400,000 factory jobs since an employment peak in 2002 – a trend expected to intensify over the next year as the North American economic slump deepens and demand for everything from auto parts to newsprint dries up.
“We don’t know how bad it’s going to get and everybody is keeping their fingers crossed, but right now there’s no indication of a quick turnaround,” says Jayson Myers, president and chief executive officer of the Canadian Manufacturers and Exporters.
“This is just the beginning of significant job losses and closures unfortunately,” said Myers, whose Ottawa-based group lobbies for manufacturers. “The short term is going to be a very tough one for manufactures and exporting.”
In the last week, another round of major layoffs hit the forestry and automotive industries, the two sectors of the Canadian economy that have already borne the brunt of slumping demand from the U.S. housing and auto markets.
General Motors announced it would temporarily lay off a third shift at its car plant in Oshawa, Ontario, affecting 700 workers, as the carmaker cuts another 2,000 jobs across North America.
In Montreal, newsprint giant AbitibiBowater Inc announced the closure of a mill in Grand Falls, N.L., with the loss of at least 800 jobs, a move that will devastate the community in central Newfoundland that has depended on the mill for more than a century.
Canada’s manufacturers, which employed about 2.1 million people at the end of 2006, are being caught in the perfect storm of a high dollar, a battered US auto and housing market and the worldwide credit crunch. As well, the industry has been affected by the globalisation of the factory economy that has seen jobs move from Canada and the United States to lower-wage countries such as Mexico, China, Malaysia and Thailand.
But the US recession has taken the biggest toll on blue collar industries in Canada as demand for auto parts and machinery, lumber and paper erodes in the critical US economy, the export market for three-quarters of Canadian goods.
“What’s happening is companies are working off the orders they have but new orders have really plummeted and some companies haven’t reported any new orders for a month or so,” said Myers. “So what we’re seeing is temporary layoffs and we’re seeing an increasing rate of closures and those are permanent job losses.
“In the long term, markets will rebound, customers will spend again and production will pick up, but clearly not to the levels they were even at the beginning of this year. So there’s going to have to be some consolidation, and employment is not going to (come back).”
With job losses mounting and gloom surrounding industrial Canada, the auto and forestry industries are pressing the Federal and Provincial Governments for financial aid and loan guarantees to help cushion the blow of the market slump and help raise new money.
Without such Government help, Canada’s forestry industry is headed for extinction, further ravaging small mill towns across the country, according to Dave Coles, president of the Communications, Energy and Paperworkers Union.
“If they don’t, I think we’re not going to have an industry left in a year or year and a-half,” Coles said in an interview. “I think it will be wiped out.”
More than 40,000 jobs have already been lost as sawmills have closed because of the weak US market, and reduced advertising and readership has decimated North American newspaper demand.
Coles said the Government must sponsor a national strategic meeting of all the key players, including industry, provinces and unions, to develop a long-term strategy.
While many forest companies are viable, they may fail in the new year because the credit crunch has eliminated their ability to refinance debt. Among those most seriously challenged are Montreal-based AbitibiBowater and Catalyst Paper Corp. of Vancouver.
“The credit crunch has changed the game worldwide,” said Coles, who along with industry leaders wants Ottawa to co-sign and backstop billions of dollars of loans rather than provide direct aid and subsidies.
“What we saw with AbitibiBowater…was a tsunami but I think we’ve got some tidal waves coming.”
Kevin Mason, an analyst at Equity Research Associates, said a turnaround wasn’t expected for many months for lumber and construction panel producers, while paper makers face tough times as consumption of newspapers and other paper products declines.
“You can’t create demand for something that isn’t there,” said Mason, who expects more production cuts and mill closures in BC and other parts of the country.
“In the paper grades specifically we are in a secular decline, and on top of that we have a cyclical decline because of the economy.”
When recovery occurs, the value of the Canadian dollar could have as much impact on the health of Canadian manufacturing as resurgent demand from a growing American economy. Studies show that Canadian manufacturing employment rises as the loonie falls and falls as the currency rises.
A loonie that hit US$1.10 in value last year made Canadian products uncompetitive in the US market and helped wipe out thousands of jobs as Canadian factories were consolidated by multinational companies and production shifted back to the US or elsewhere.
The currency is now trading in the high 70s US but it needs to stay in that range or move a bit higher to have a long-term positive impact on the manufacturing sector.
James Marple, an economist with TD Bank, said a lower dollar would assist goods producers, helping lower prices for exported goods in the US market and reduce Canadian wage costs compared with the United States.
“Coming out of this whole thing, the one light could be that if we see the Canadian dollar settle down at something like a 90 cent US level that will help the cost competitiveness of the manufacturing sector.”
Looking ahead, Myers says specialised manufacturing companies, with innovative and value-added new products and customized services will have the best chances of success once the North American recession ends and the economy recovers.
“Even when you look at paper, it’s specialized paper where you may have only two and three people in a plant, it’ll all be automated, computerized, very high tech. Even on the cars side, the future is in flexible product line, flexible production systems.
“We are not going to compete on standard products, but that’s been the case for some time. Right now we have to make sure that we have a sector that can survive the financial crisis.
“You still need a manufacturing sector even though a lot of the jobs are going to the services sector. You still need a product. You wouldn’t have many engineers without a product to engineer.” — The Canadian Press