Canadian firms must take advantage of investment opportunities

The lack of capital investment by Canadian companies in new machinery and equipment is having a significant negative impact on productivity which will only get worse in the future, warns a recent report from TD Economics.

“Investment in physical capital is imperative for economic and productivity growth-it creates new products for consumers, jobs for workers, profits for investors, and taxes for governments.

“When businesses invest in capital, especially machinery and equipment, they equip their workers with the necessary tools to create more sophisticated goods and services and earn higher salaries. It also expands and renews the capital stock and enables new technologies to enter the production process,” says the report written by Don Drummond, senior vice president and chief economist and Ritu Sapra, economist, both with TD Economics.

However, the report, which looks at Canada’s performance in investment from both historical and international perspectives, says that Canadian firms have a poor record when it comes to new capital investment.

“The short message from this comparison is that Canada is not keeping up. The past decade has seen a declining trend in business sector investment intensity in Canada compared to other OECD and G7 countries. The comparison with the U.S. is even worse.

“And while relative underinvestment is not new, this adverse trend continues despite the loonie’s recent meteoric rise, which has lowered the relative price of machinery and equipment-much of which is imported-and might therefore have been expected to bolster investment,” the report points out.

The lack of machinery and equipment investment comes at a time when Canadian companies have enjoyed solid profit growth, the report says, adding that since 2002, profits have been close to record levels in Canada, averaging 12.9% of GDP.

Lack of capital investment in new machinery and equipment by Canadian firms is one of the main reasons for Canadas’s poor record in productivity growth, the report says.

And make no mistake, improving productivity is a critical goal, the report emphasizes. “We should care deeply about productivity. At the most basic level, productivity growth is the key driver behind a rising standard of living over time. Stronger productivity growth allows for faster economic growth without sparking inflationary pressures.”

However, “Canada’s productivity growth record has been dismal, both from a historical and an international perspective. Since 2002, Canada’s labour productivity performance has deteriorated relative to both our performance during most of the 1990s and early 2000s and relative to the performance of labour productivity in the United States post-2002,” the report states.

For example, the report says that business sector output per hour grew at at only 1% average annual rate in Canada between 2002 and 2006, compared to 2% between 1992 and 2001 and only one-third of the annual rate of increase of 3% recorded in the United States since 2002.

“Canada’s abysmal productivity performance has resulted in the widening of the business sector labour productivity gap versus the United States, from 17 percentage points in 2000 (83% of the U.S. level) to 26 points in 2006 (74% of the U.S. value) the lowest level recorded since mid-1950s,” according to the report.

In the future, productivity, the report continues, will be an increasingly important determinant of economic growth.

“The main message is simple-the private sector, aided by the public sector, must put greater weight on productivity enhancing captial investment in the coming years,” the report warns.

Jerry Cook
Editor, MPP
jcook@clbmedia.ca

If you are a print subscriber to MPP, you have been receiving MPP Metalworking Mailer CARD PACKS. These "post cards" on a variety of machine tool, cutting tool, and ancillary products are now available in a digital format at the MPP website.
In this e-LETTER (and in the future), you will receive a "new" hotlink to click on for links for information on a broad variety of technologies, from CNC machine tools and linear quality control products to cutting tools and other products.

Hardinge opening Canadian Technical Center

Hardinge is opening a new 15,000 sq. ft. Canadian Technical Center in Mississauga, ON.

Hardinge Inc., Elmira, NY is opening a new Canadian Technical Center in Mississauga, ON.

The 15,000 sq. ft. Hardinge of Canada’s Canadian Technical Center will support the full complement of Hardinge lathes, turning centers and workholding industrial products; Bridgeport mills, machining centers and grinding centers; Kellenberger cylindrical grinders; Hauser jig grinders; Tschudin production OD grinding systems; and Tripet production ID/OD grinding systems. Support will be dedicated to both pre and post sales services and the facility will stock a full complement of machines, repair parts, collets, tooling and industrial products.

“This building and the team behind it represent Hardinge’s long term commitment to manufacturers in Canada,” says Doug Tifft, president of Hardinge of Canada.

www.hardingecanada.ca

Click on cover to view June 2007 issue

Special Features

• Metalworking in Western Canada
• Robotics/Automation
• Fabricating/Forming
• Canadian Manufacturing Technology Show, Oct 15-18
  - CMTS Show Preview

Product Spotlight

• EDM/Accessories

Regular Departments

• Software Solutions
• Welding Zone
• Cutting Tools

For advertising information e-mail: nbishop@clbmedia.ca or click here to download a Media Kit.

Automotive Parts Manufacturers Association of Canada - This site is an information resource for Canadian OEM producers of parts, equipment, tools, supplies and services to the automotive industry. www.apma.ca

Canadian Machine Tool Distributors Association - A resource for Canadian machine tool distributors. www.cmtda.com

Canadian Welding Association - Information resource for the Canadian welding industry.
www.cwa-acs.org

Lincoln Electric Company - Register online for access to the latest news from the Lincoln Electric Company and receive your copy of iWeld eNewsletter. www.lincolnelectric.com