Canadian Manufacturers See Reasons for Optimism

Considering the soaring Canadian dollar, Statistics Canada decided to poll Canadian manufacturers to see just how much pain they are in over it. Oddly enough, although they are undeniably hurting, manufacturers appear to have reasons for optimism.

The next logical question is, why? Apparently, although it may be harder to sell their stuff and more expensive to get their hands on raw materials, Canadian manufacturers are confident when it comes to strong production and even stronger employment in the sector.

Just in case you don’t think manufacturers have completely lost their marbles, they are aware that in the months ahead, their ride will be nothing but smooth. For starters, the first point of concern is the declining rates of new orders, as well as lower-than-normal levels of unfilled orders. According to Stats Canada, 19% of polled companies expect new orders to decline in the third quarter. This percentage is considerably higher than 11% reported for the second quarter. Furthermore, 18% of those surveyed reported lower-than- expected levels of unfilled orders, in comparison to 16% reported for the previous quarter.

Still, when Stats Canada’s pollsters balanced optimists versus pessimists in relation to production levels, employment, and business impediments, at least more are expecting improvements in the next business cycle, rather than forecasting a downturn.

What does that mean to investors? I’m sure you’ll agree that the past few trading sessions were difficult to ignore. The stock markets took quite a few hard hits. Our largest trade partner south of the border is having a choppy ride, to put it mildly, mostly fueled by the troubled credit market bubble that seems just about ready to burst and wreak its special kind of havoc. On the other hand, U.S. businesses are hopeful when it comes to earnings and employment.

As long as this balance of opinions holds, and as long as the U.S. credit market bubble bursts, it is not too strongly reminiscent of what happened when the tech bubble burst in 2000. Canadian manufacturers will have buyers for their products and will be able not only to stay afloat, but actually to get ahead. Having buyers means potentially more new orders and lower inventories, which means more revenues and stronger earnings.

Even though optimism is intangible, cannot be measured in cash, and is often prone to overshooting, it is the necessary factor that often gives the incentive to push harder and go that extra proverbial mile, pardon the cliché. So when we talk about markets getting jittery, it means there are more pessimists than optimists. And when we talk about markets rallying, it means there are more optimists than pessimists. The way things are going right now, North American markets need as many optimists as possible, and badly!