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Manufacturing exports 'better than advertised' but no GDP or employment spinoffs yet: CIBC

The benefits of the multiplier effect are nowhere to be seen due to the disconnect between export performance and economic impact

TORONTO, Sept. 28, 2016 /CNW/ - Canada's manufacturing exports have risen 12 per cent in volume since 2012, but that hasn't made much of an impact on GDP or employment yet, finds a new report by CIBC Capital Markets.

"Canada's manufacturing exporters have responded better than advertised to global demand and currency movements over the past few years," says Benjamin Tal, Deputy Chief Economist, CIBC, who authored the report, Waiting for the Export Multiplier. "The real disconnect is the inability of manufacturers to translate those export gains into GDP and employment gains."

Since 2012, when the loonie began its descent from parity, dollar-sensitive industries, such as aircraft, plastic, and pharmaceutical and medicinal products, saw export volumes rise notably faster than industries that are less sensitive to currency fluctuations. However, it has been the dollar-sensitive industries that have underperformed when it comes to GDP and unemployment growth.

"This abnormal behaviour suggests that despite currency-induced relative improvement in labour costs, labour-intensive industries cannot be the chief catalyst of manufacturing growth in the near term," Mr. Tal says. "Capital-intensive industries must step up to the plate."

After falling significantly during the recession, capital-intensive manufacturers in Canada are still 10 per cent below pre-recession levels, and also lag the performance of labour-intensive sectors, the report says. Compared to the U.S., Canadian capital-intensive manufacturers are also severely underperforming – production south of the border is now 12 per cent above pre-recession levels.

Meanwhile, labour-intensive manufacturers in the U.S. and Canada have remained roughly in line with one another, but U.S. labour productivity has gained some ground, the report says.

Despite recent softening, labour productivity has risen by an annual average of 2.6 per cent since 2006 – that's more than double the productivity gain seen in Canadian manufacturing," Mr. Tal notes.

The main benefit of the lower dollar should be lowering the relative cost of labour while the cost of capital equipment has been rising, but Mr. Tal says that companies aren't responding by substituting capital equipment for labour as one would expect.

While capital costs have been rising, energy prices have been on the decline for Canadian manufacturers, but that hasn't helped many industries either. "At the margin, that can help but those margins are very narrow," Mr. Tal explains. "Energy accounts for a small 2.5 per cent of total cost—down from 2.9 per cent at the beginning of the decade."

Mr. Tal says the disconnect between export performance and other real economic indicators in the Canadian manufacturing sector might reflect the limited ability of labour-intensive industries to carry the torch.

"The shift to more capital-intensive activity will be constrained by the increased cost of capital equipment," he says. "The rotation is coming, but it might take even longer than currently expected."

About CIBC
CIBC is a leading Canadian-based global financial institution with 11 million personal banking and business clients and three major business units – Retail and Business Banking, Wealth Management and Capital Markets. CIBC Capital Markets provides integrated global markets products and services, investment banking advisory services, corporate banking, and top-ranked research to corporate, government and institutional clients around the world. Visit for more information on CIBC and CIBC Capital Markets. News releases are available at          

SOURCE Canadian Imperial Bank of Commerce

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For further information: Benjamin Tal, Deputy Chief Economist, CIBC Capital Markets, at (416) 956-3698,, or Caroline Van Hasselt, Director, Public Relations, 416-784-6699 or