Manufacturing's death spiral

Just what the Bank of Canada didn't need....data released today showed that the Canadian economy shed 9,400 jobs in June.  Particularly after the very strong employment numbers recently released in the US, economists had been expecting StatsCan to announce a 20,000 job increase for the month. Today's numbers mean that Canada has added just 72,000 jobs, or just about 0.4%, over the past year. Considering all the bragging out of the Federal Government about how well Canada has performed compared to the rest of the developed world,, this is a shockingly low number.

One of the key takeaways from the data is that the Ontario manufacturing sector continues to crumble. Employment in that sector fell by 13,000 in June, to the lowest level seen since 1976. That contributed to an overall loss of 35,000 jobs in the Province, by far the worst showing anywhere in Canada.

What's going on here?  It's now beyond any reasonable doubt that the free trade deals with the US and Mexico, while they may have been beneficial for the country as a whole, completely knocked the props out from under the manufacturing belt that once stretched from the GM plants in Oshawa, via the steel mills of Hamilton, to the John Deere factory in Welland and the Chrysler assembly plants in Windsor, with much else in between.

Right from the start there were warnings that the branch plant nature of much of the sector would likely result in jobs shifting to the US over time.  This has indeed happened, and the subsequent addition of Mexico to the free trade zone has compounded the problem. The rapid emergence of Asia as a global manufacturing powerhouse has only made things worse.

Ontario has simply failed to re-orient itself in the face of these huge challenges.  Although there are some promising signs in the high tech field, these have been on nothing like the scale needed to offset the massive loss of jobs in the old metal-bashing trades.  The relative weakness of the Canadian dollar over the past year or so has done nothing to stem the decline.

It all looks a bit similar to the UK.  Just as the prosperity of London, with its financial might and its overpriced housing, overshadows the structural problems besetting much of the rest of the country, so the success of Toronto, also based on banking and housing, is becoming ever more detached from the seemingly intractable difficulties in other parts of the Province.  

It's not likely to get any better. Free trade with Japan and Korea will hammer a few more nails into what's left of the automobile sector.  Among the "domestic" producers, Chrysler recently caused conniptions in political circles by refusing government financial help with an upgrade of its Windsor minivan factory -- very possibly to make it easier to close the plant altogether at some future date.

There isn't a whole lot that politicians or the Bank of Canada can do about this. It's clear enough now that Ontario manufacturing's problems have next to nothing to do with the exchange rate -- they're structural. As The Boss wailed in "My hometown", "these jobs are going, boys, and they ain't coming back".  It looks as if the Ontario of the future will be based on financial services, construction and tourism -- not the worst possible scenario, but not one that affords a whole lot of flexibility in tough times.