Posthaste: This sector of Canada's economy is firmly in recession
The Bank of Canada’s view that the worst is behind us was challenged recently by warning signs from two key sectors of the economy, say economists.
Canada may have dodged a recession (so far), but the same can’t be said for the manufacturing sector. Factory sales slumped to their lowest in two and half years in June, bringing them almost 6 per cent below their peak in May 2023.
Even if sales perk up in July this sector is still on track to contract for the fourth consecutive quarter, said Stephen Brown and Olivia Cross of Capital Economics.
Manufacturing capacity utilization remains lower than before the pandemic, “so even if borrowing costs fall further, firms seem to have little incentive to invest, the economists said.
The message echoes the Bank of Canada’s own business survey which found plans for investment spending are below average.
The bank said businesses are increasingly spending money on upkeep and repair rather than expansion or improving productivity because of high interest rates, weak demand and economic uncertainty.
Another survey by the Conference Board of Canada found that about 63 per cent of Canadian businesses are currently operating below their capacity.
“Until more businesses reach or exceed optimal capacity, there may not be a strong incentive for manufacturers to expand their facilities or add to existing machinery and equipment,” it said.
There was more bad news in the construction sector.
Building permits fell 14 per cent in June from the month before, with non-residential permits dropping 18 per cent to their lowest level since the pandemic.
“Commercial, industrial and institutional & government permit issuance are now all down markedly from their earlier post-pandemic highs,” said Brown and
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