MANUFACTURING SECTOR – CANADA –

SEPTEMBER 2016BY: PAUL YOUNG, CPA, CGA

DATE: NOVEMBER 12, 2016

OVERVIEW

• This presentation will look at the manufacturing sector in Canada. The focus will be on wages, employment, exports, manufacturing sales and government policies

AGENDA• Employment and Wages

• GDP / Manufacturing

• Canada Exports

• Manufacturing Sales/Province

• Manufacturing Sales/Sector

• PMI Index

• Innovation

• Carbon Tax/Ontario

• Summary

SUMMARY – MANUFACTURING – CANADA – SEPTEMBER 2016

• Manufacturing sales rose for the fourth consecutive month, up 0.3% to $51.5 billion in September. The gain reflected higher sales in the transportation equipment and fabricated metal industries. Sales were up in 12 of 21 industries, representing 70.1% of the total manufacturing sector• Energy Sector continues to struggle due to low commodity prices

• Forestry sector maybe impacted through the lack of a new softwood lumber deal

• In Ontario, sales increased 0.3% to $25.1 billion, mostly reflecting gains in the machinery, transportation equipment and fabricated metal industries. Overall, 13 of 21 industries reported higher sales in September, representing 77.4% of total manufacturing in the province. Sales in Ontario were 3.3% higher this September than in September 2015

• Sales rose 1.7% in Quebec, the fifth increase in six months. Production in the aerospace products and parts rose 9.2%. An increase of this magnitude is not unusual for the industry, as aerospace production is substantially more volatile than the manufacturing sector as a whole. Sales of electrical equipment appliance and component (+10.9%), food (+1.4%) and primary metals (+1.2%) industries also contributed to the provincial gain.

• Sales in the transportation equipment industry rose 1.5% to $10.6 billion in September. The advance was the result of gains in the railroad rolling stock (+72.6%), the motor vehicle (+1.3%) and the aerospace product and parts (+3.8%) industries. The increase in the transportation equipment industry accounted for more than 85% of the total gain in manufacturing sales.

• Canada has lots automotive production due to closures may by Ford and General Motors

• More small car manufacturing is moving to Mexico

Source – Stats Canada

EMPLOYMENT AND WAGES

Stats Canada

• Manufacturing employment is down 34K since December 2015.

GDP/MANUFACTURING

Stats Canada

CANADA/EXPORTS

Stats Canada

CANADA/MANUFACTURING SALES BY PROVINCE

Stats Canada

CANADA/MANUFACTURING SALES BY KEY SECTOR

Stats Canada

CANADA PMI INDEX

The seasonally adjusted RBC Canadian Manufacturing PMI increased to 51.1 in October of 2016, compared to 50.3 in the previous month, driven by a renewed rise in new work and greater employment numbers. Meanwhile, production volumes stagnated amid subdued demand patterns and ongoing efforts to reduce finished goods inventories. Also, operating margins were eroded further amid falling factory gate charges and a sharper increase in manufacturers’ input costs. Manufacturing PMI in Canada averaged 52.19 from 2011 until 2016, reaching an all time high of 56.30 in April of 2011 and a record low of 47.50 in December of 2015. Manufacturing PMI in Canada is reported by Markit Economics.

http://www.tradingeconomics.com/canada/manufacturing-pmi

INNOVATION• The 3D printing industry has been riding a historic growth wave since 2012, but today in 2016 the landscape for

opportunities is continuing to evolve. With significantly increased competitiveness causing fluctuations in the hardware market, printer OEMs and third party developers are now collaborating to develop 3D printing software as one of the biggest future opportunities to continue to push towards industrialization of additive manufacturing. Historically, the software workflow for 3D printing has not seen the same development attention as hardware or materials -but this is clearly changing today. Global software giants like Autodesk, Siemens, and Adobe are now turning significant focus to streamlining the current workflow software chain, while printer OEMs seek to partner with firms to create more efficient software ecosystems to gain competitive advantage - http://www.prnewswire.com/news-releases/research-and-markets---3d-printing-software-market-analysis-2016-2026---global-trends-technologies--forecasts-report---vendors-materialise-autodesk-3d-systems-300347781.html

• Robotic Industry - http://www.canadianmanufacturing.com/manufacturing/china-showcasing-burgeoning-robot-industry-177658/

• Laser Welding - http://www.canadianmanufacturing.com/manufacturing/arcelormittal-tailored-blanks-gets-12-7m-infusion-from-feddev-ontario-177093/

CARBON TAX/ONTARIO• The carbon market, to this day, has had zero effect on the habits of Quebecers—I am quite ready to say that,” said

Pierre-Olivier Pineau, chair in energy sector management at HEC Montreal. Source - http://www.canadianmanufacturing.com/environment-and-safety/quebec-carbon-market-little-impact-changing-behaviour-far-177722/

•“Right now we are studying relocating parts of our business to the United States, and asking our employees to come with us. We have told the government repeatedly that cap-and-trade is hurting us,” said Jocelyn Williams, vice-president of Automatic Coating, and founder of the coalition. Relocating to the United States would give companies a competitive advantage because they will not be faced with a similar carbon tax to Wynne’s plan. Trump will not be imposing a carbon tax, nor will the Republican-controlled Congress. Indeed, the coal industry was enthusiastically embraced by Trump during the election. This means that our friends south of the border will continue to enjoy far cheaper electricity than those of us here in Ontario, who already are stuck paying some of the highest rates in North America. Source - http://www.torontosun.com/2016/11/10/real-threat-to-ontarios-economy-isnt-a-president-trump

SUMMARY – CANADA MANUFACTURING – OCTOBER 2016

• Carbon Tax policies will impact manufacturing. Approximately 75% of all exports go to United States. Manufacturers will be less competitive with the United States competitors. Trump is not bringing in a carbon taxation.

• Canada Productivity continues to slide compare to countries like the USA. Key factors that drive productivity are capital investment and innovation

• New United States president that is focus on business reforms, i.e. lower taxation, regulations, etc.

• Hydro rates have yet to be controlled

• Business have complained to various provincial governments on their hydro rates. Companies will continue to look at ways to be price competitive.

• Business can respond to policy changes by government, but not when they are being slammed with carbon tax, payroll tax hikes, hydro rates and carbon taxation.