What’s Killing Our Manufacturing Jobs (By Steven Theobald in The Toronto Star)

February 11, 2006: What's Killing Our Manufacturing Jobs (By Steven Theobald in The Toronto Star)

What's killing our manufacturing jobs?
Almost 42,000 factory jobs vanished in Canada last month – 33,000 in
Ontario – for the biggest monthly drop in 15 years as a stronger dollar and cheaper imports hit manufacturers

Feb. 11, 2006. 08:55 AM

The final piece of furniture rolled off Joe Falcone's factory floor two weeks ago, marking the end for a 23-year-old company and its 100 employees.

The Mississauga-based manufacturer called in the liquidators after finally losing the battle against both the strong Canadian dollar and cheap imports flooding in from China.

“The problems started happening three years ago, and they just kept coming harder and harder,” said Falcone, who founded T&J Furniture Mfg. Ltd. with partner Tony Orlando.

“We put $3 million – $1 million a year – into the company to see if we could make things happen, but it never happened.”

The plant, which once served a 600-strong customer list that included Sears Canada, Bloomingdale's and Macy's, has been sold. “To prevent closing we tried to do different things, but still we are not competitive with the Chinese,” Falcone said. “Operation costs are way higher here.”

This story has been playing out across Canada's manufacturing sector, more than half of which is located in Ontario.

January was an especially brutal month, with an estimated 41,600 factory jobs lost, the biggest one-month drop in 15 years, Statistics Canada says.

Ontario saw 33,000 manufacturing jobs disappear last month, taking the
province's total cuts to 93,000 since the end of 2002, just before the
loonie began its 36 per cent appreciation.

Canada's factory sector, which still employs 2.13 million people and is a source of exports, fought back against the stronger currency. It even added a few thousand net new jobs in 2004.

But the wheels fell off last year and manufacturers started cutting
payrolls – 145,000 positions in the past 12 months.

The sector may see a bit of a rebound in the summer when payrolls typically peak, but the overall outlook won't get better any time soon, said Jay Myers, chief economist at Canadian Manufacturers & Exporters.

Several companies have already announced looming plant shutdowns in Ontario.

“I don't see the situation turning around very quickly,” Myers said. “If anything, the high dollar, from what I hear, continues to speed up decisions.”

There is some positive news.

“Along with the job losses, we are seeing tremendous increases in
manufacturing productivity,” Myers said. “Overall production is near record levels.”

The country's service sector, which accounts for two-thirds of the economy, actually added jobs in January.

While goods producers shed a net 34,400 positions, service providers
expanded by 60,700 jobs.

The 26,300 total increase wasn't enough to keep the unemployment rate from edging up a tick, for January, to 6.6 per cent, as more people entered the labour force seeking work.

Ontario's jobless rate rose to 6.5 per cent, from 6.2 per cent in December, although the province gained 16,000 positions.

“As long as the dollar keeps rising we are going to have problems in
Ontario's manufacturing base,” provincial Minister of Economic Development and Trade Joe Cordiano said yesterday.

“We are trying to do everything we can as a province but there is only so much we can do alone. We are going to need the federal government to help us.”

Ontario Progressive Conservative Leader John Tory said the province has lost about 80,000 manufacturing jobs in just over a year and said the Liberal government doesn't appreciate the seriousness of the situation.

NDP Leader Howard Hampton blamed Premier Dalton McGuinty and high
electricity prices, and warned the job losses will get worse. Hampton said energy-intensive industries had told the government two years ago that “your policy of driving electricity rates through the roof is going to kill hundreds of thousands of good-paying industrial jobs.”

The job losses in Ontario's manufacturing sector may put pressure on the Bank of Canada to delay interest-rate increases it has warned are on the way.

Such thinking, combined with falling commodity prices, put pressure on the Canadian dollar yesterday. The currency ended the day at 86.67 cents (U.S.), down 0.61 of a cent.

The loonie could come under further pressure if oil and gas prices fall in the coming weeks along with a signal from the central bank it may ease up on interest-rate increases, said Stewart Hall, a market strategist at HSBC Securities (Canada) Inc.

But Bank of Canada governor David Dodge ought to resist the temptation to focus on Ontario's woes while Western Canada is booming and the economy as a whole needs interest rates back to more neutral levels in order to keep inflation pressures under control, Hall added.

“If you step back from the regional disparities, you have an economy running slightly beyond full capacity.”

Moreover, the central bank could try to weaken the dollar to help exporters, but it is foolish to think it can stop the economy's long-term transition to a service-based one and away from manufacturing, Hall said.

“It's not new. It's just that the process has been accelerated.”

with files from Richard Brennan and Robert Benzie