The Ontario economy’s manufacturing sector was particularly hard hit by the 2009 recession. One measure of whether it is rebounding is to see if there is substantial new investment going into Ontario manufacturing in terms of capital expenditures on construction, machinery and equipment. It does not look very good.
Take a look at some Statistics Canada numbers (Table 290005-Capital and Repair expenditures, by sector and province, annually) just for capital spending (am not including repairs) in manufacturing. Figure 1 plots total nominal capital expenditure from 1991 to 2013. There seem to be three phases. It grows rather robustly from 6.2 billion dollars in 1991 to reach 10.8 billion in 1998 and then starts to decline but nothing like the collapse after 2007. Then it goes from 10.8 billion dollars in 1998 to 9 billion in 2006, and picks up a bit in 2007 to reach 10 billion in 2007. Finally, it then collapses and stays flat and is at about 6 billion dollars in 2013. The fact that new capital spending remains moribund means a very slow recovery for manufacturing in Ontario’s future.
Take a look at what happens across the assorted manufacturing sub-sectors in Figure 2 when divided into the three phases visible in Figure 1. The period 1991 to 1998 saw capital expenditure growth in all the categories except petroleum and coal products. Some of the highest growth rates were in the wood products industry, fabricated metals and furniture products. The period from 1998 to 2007 saw a decline in quite a few sectors – wood products and paper as the forest sector crisis took its toll but also metals and machinery and electronics. As for the bright spots, there was a recovery in petroleum and coal products manufacturing showing there are some benefits to Ontario manufacturing from an energy sector boom. As well, a bit of growth in capital spending in furniture, food manufacturing and furniture. As for the period 2008 to 2013 – well is pretty much a decline across the board with the exception of tiny increases in paper manufacturing and food manufacturing and a more robust increase in electrical equipment and appliances. The biggest percentage declines were in wood products, transportation equipment and furniture manufacturing.
Two additional points I want to make. First, I am taken by how across the board the decline in new capital spending was for the period 2008 to 2013. No sector seems to have escaped with the exception of electrical equipment and appliances. Such a broad based collapse obviously does not bode well for Ontario’s industrial future. There seem to be only losers. Second, I am puzzled by the performance of the furniture manufacturing sub sector. I’m not surprised by its decline in the 2008 to 2013 period. I am surprised by its growth between 1991 and 2007 as I recall that the expectation was that the furniture manufacturing industry was going to be hard hit by the Canada-U.S. Free Trade Agreement. They obviously responded by investing and upping their game.