Smaller manufacturing cities show growth for first time in two years

TORONTO, Jan. 12 /CNW/ - CIBC (CM: TSX; NYSE) - The recent rebound in Canadian manufacturing has seen the country's 25 largest cities regain all the economic ground lost in the recession according to CIBC World Markets' latest Canadian Metropolitan Economic Activity Index.  

"Recent data on manufacturing production and shipments reveal a sector that is on the mend," says CIBC Deputy Chief Economist Benjamin Tal in his latest Metro Monitor report. "While the over 65,000 new manufacturing jobs created in December clearly overstate the real health of the Canadian manufacturing sector, the direction is clear. The footprints of a recovering manufacturing sector are very evident."

The report notes that only two of Canada's 25 metropolitan areas showed negative growth in economic activity during the third quarter of 2010. This was the smallest number in more than two years and a significant improvement over the third quarter of 2009 when 10 cities were in negative territory.

For the first time since CIBC developed its Metropolitan Economic Activity Index, the city of Montréal ranked number one, up from the 10^th spot a year earlier. "The economic momentum in the city of Montreal has traditionally been correlated with activity in the manufacturing sector, and the recent improvement in that sector clearly played an important role in placing the city at the top of our cities' momentum ranking," notes Mr. Tal.

The Toronto economy is not as strongly linked to the manufacturing sector as Montréal's economy is but it was able to enjoy the positive spin-offs from the improvement in the industry. It also benefitted from an improving financial sector and some recovery in the economic activity of small and mid-size firms.

Despite the fading economic benefit of the 2010 Olympic Winter Games, Vancouver was able to sustain its relatively elevated ranking reflecting still strong population growth as well as an impressively strong labour market.

"The most significant impact of the awaking manufacturing sector can be felt in smaller manufacturing-based cities such as Windsor, St. Catharines-Niagara and Saguenay, says Mr. Tal. "The economic momentum of these cities, as measured by our index, was in negative territory for most of the past two years. The recent recovery in the manufacturing sector has finally given these municipalities positive economic momentum.

"The city of Windsor is a prime example of the manufacturing-led recovery. Employment in the city has been rising for three consecutive quarters — a performance not seen since 2006. Same goes for the housing market with housing starts being in positive territory for almost a year — the best performance since 2004."

Mr. Tal adds that while the relative importance of manufacturing activity in the Canadian economy as a whole has been on a decline, the recent improvement in the sector highlights the fact that it is still extremely important not only in its contribution to overall economic growth, but more importantly, in its ability to reshape the economies of many of Canada's major urban centers.

"Just as we have seen a recent rebound in manufacturing in the U.S. the sector in Canada's major cities is also showing some life. With more than two-thirds of Canadian GDP generated in Canada's major cities, the tale of those cities is the tale of the economy."

CIBC Metropolitan Economic Activity Index (2010 Q3)

3Q Moving Average

About the CIBC Metropolitan Economic Activity Index

Using 9 key macroeconomic variables, CIBC's metropolitan index of economic activity is structured in a way that approximates the change in each city's level of economic activity. With data going back in history, the index monitors not only the current performance of a given city but also tracks its cyclical behaviour against the national economy and other census metropolitan areas (CMAs). The focus is on the 25 largest CMAs in Canada.

The macro variables used to develop the index are:

• Population growth;
• Employment growth;
• Unemployment rate;
• Full-time share in total employment;
• Personal bankruptcy rate;
• Business bankruptcy rate;
• Housing starts;
• MLS Housing resales; and
• Non-Residential building permits.

The complete CIBC World Markets report is available at: http://research.cibcwm.com/economic_public/download/metro_monitor.pdf

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