Two new reports suggest better times are ahead for Canada's embattled manufacturing sector, but for one Winnipeg factory, the long-awaited revival has already begun.
After watching its fortunes go sideways during the 2008-09 global recession, Custom Castings Ltd. has seen a slow but steady growth in sales during the last few years.
Now, with the U.S. economy picking up steam -- the U.S. accounts for about 65 per cent of Custom Castings yearly sales -- and the Canadian dollar hovering near 90 cents US, company president Mark Striepe said Tuesday recovery appears to be kicking into an even higher gear.
"We've definitely been getting indications in the last six to eight months that, although our business has been fairly strong... demand seems to be picking up," he said. "And we have every indication that that is going to continue."
Two new bank reports issued Tuesday suggest Striepe's optimism is well-founded. The Royal Bank of Canada (RBC) reported its manufacturing purchasing manager's index (PMI) rose to 53.3 in March, up from 52.9 per cent in February. It was the second gain in as many months for the index, which hit a nine-month low of 51.7 in January but remained above 50 -- indicating expansion in the sector.
RBC said the increase in business confidence is "encouraging" because it mirrors solid numbers in other indicators in both Canada and the United States.
"We continue to expect that underlying economic conditions -- a strengthening U.S. economy and a weaker Canadian dollar -- will lay the foundation for a boost in domestic manufacturing in the near term," said RBC chief economist Craig Wright.
CIBC also issued a report Tuesday that predicts a decade-long contraction within Canada's manufacturing sector may finally be over.
"I think the bleeding is over," said deputy chief economist Benjamin Tal. "We still have competitive pressures, but what I'm saying is that the industry is in position to take advantage of the stronger U.S. economy. And the fact that the dollar has depreciated by 10 per cent is also significant."
Tal said the industries with the best chance of a robust bounce-back in the next few years are wood products, followed by primary metals, machinery, aerospace, and computer and electronic suppliers.
But the good news must be kept in perspective, he added, noting the manufacturing sector is still 10 per cent behind pre-slump highs and in the past 10 years has gone from generating 16 per cent of Canada's annual economic growth to 12 per cent. A key reason Tal sees better days ahead is many manufacturers emerged from the recession leaner, stronger and more efficient. Productivity has risen by nine per cent between 2009 and 2013, compared with only about seven per cent for the first decade of the 2000s.
Striepe said that's certainly been the case with Custom Castings, which manufactures aluminum castings used by original-equipment manufacturers to make parts and components for the equipment they produce.
He said Custom Castings has invested millions of dollars over the last 10 years on productivity-enhancing equipment and technologies, and on incorporating lean manufacturing practices into its operations. The result has been a 75 per cent increase in revenues during the past five years, and an increase in staffing to about 140 employees from 80 to 90 in 2009.
Ron Koslowsky, vice-president of the Manitoba division of the Canadian Manufacturers and Exporters (CME), said the dollar's drop, coupled with the strengthening U.S. economy and a rebound in U.S. consumer confidence, has a lot of other manufacturers and exporters also feeling more upbeat these days.
Although a lower dollar drives up the cost of U.S.-made raw materials and equipment, Koslowsky said it also makes Canadian-made products more affordable. And that, coupled with U.S. consumers and companies ramping up their spending, is boosting the demand for Canadian-made products.
-- with files from The Canadian Press