Shutdowns, running at capacity, and everything in between

The sky is falling! The sky is falling! Or is it?

In October 2008, plummeting oil prices (as well as other commodities) combined with the effects of a global financial crisis pushed the Canadian economy into recession. Government loans and bailouts were used to prop up banks and industry alike, and 18 months of financial winter settled across the country. Times were bad.

When we emerged, a record low Bank of Canada rate created an unprecedented housing boom that has pushed the limits of affordability, creating a group of house-rich, cash-poor Canadians. But people were spending and happy to do so. Times were good.

Then in March of 2020, COVID-19 changed everything. Supply chains stretched to the breaking point and shortages slowed spending. Another recession was upon us. Times were bad.

While these two recessions were caused by different factors, they’ve both left us with the same end product: Uncertainty. Today, the financial teeter-totter once again is in motion.

The Statistics Canada Raw Materials Price Index (RMPI) measures the change in the price of raw materials purchased by manufacturers. It’s a key indicator of consumer inflation, which accounts for a majority of overall inflation.

The RMPI for May was up 37.4 per cent when compared year-to-year to 2021 and it has risen by two-thirds since January 2020. More recently, the index has leveled out somewhat, but wild swings likely are not over.

Rising raw material prices, the cost of supply chain strains and breakages, and the ongoing skilled labour shortage are forcing manufacturers to pass along cost increases to their customers. The direct result of this is inflation.

Inflation, in turn, has forced the Bank of Canada to raise interest rates. Times are bad. Or are they?

In 2021, total manufacturing sales in Canada hit a record high of $718.4 billion. This means that somewhere between the Delta variant of COVID-19 and monkeypox, manufacturers in this country went on a pretty good run.

A closer look at this time period shows that regionally, manufacturing sales also increased in every province. In 2021, sales increased in Ontario (+11.3 per cent) and Quebec (+19.5 per cent) and that’s even with a decline in motor vehicle sales (-18.8 per cent) and aerospace product and parts (-8.9 per cent).

As the numbers get crunched for 2022, it will be interesting to see the comparison. If we truly have momentum, then it’s time to go all in as the poker players say.

From mineral extraction to manufacturing end products, it’s time to build recession-resistant Canadian supply chains.

It’s also time to remind all levels of government that growth happens by reducing red tape, lowering taxes, creating a business environment that attracts global capital, and developing a highly skilled workforce.