“I think it’s terrible,” Immelt said, before speaking at the International Economic Forum of the Americas here. “In the end, protectionism is not a philosophy—it’s a cry for help. It’s a sign of weakness.

“That’s not the face that America should want to project. The face we should want to project is, ‘We can compete with anybody, anywhere, anytime.’”

Canadian policymakers and exporters have, of course, been deeply concerned by the Buy American provisions, which limit or prohibit the purchase of foreign goods in projects that receive U.S. stimulus funding.

GE—one of the world’s largest companies, with interests including financial services, manufacturing and technology—has publicly opposed Buy American, along with heavy equipment maker Caterpillar Inc. and other US-based companies, for fear it will spark retaliation from other countries, hindering exports. GE earns half its revenue outside the United States.

Some might see an irony in the fact that Immelt, 53, sits on Obama’s Economic Recovery Advisory Board. But even given the opposition to Buy American, the CEO said business leaders need to be involved in the discussion around policymaking.  “Look, I’m a Republican, so President Obama got elected without my vote,” he said. “But he wants to get different voices inside the administration. I think he’s a good listener.”

On Obama’s recovery plan, Immelt said, “I can’t say I agree with it philosophically every step of the way… But we’re in a period when business has to engage with government in order to get our voice heard, because the status quo is not going to be tolerated by the population.”

Immelt pegged the rise of protectionism as part of a growing anti-business sentiment in the US. “I think the man on the street would say that this recession was created by ‘business,’ quote-unquote, because we all get cast under the same banner,” he said. “I think there’s particular anger right now.”

(Look for more from my interview with Immelt in an upcoming  issue of Canadian Business magazine.)

Highlights include Dominique Strauss-Kahn, managing director of the International Monetary Fund, scolding leaders of the developed countries for promising to cleanse the balance sheets of their financial institutions with some haste, and then (to his mind) dragging their heels. He went so far as to say they’d done nothing—an overstatement he rather quickly retracted. But he stuck to his guns that the process of getting the toxic assets out in the open was “much too slow… There are lots of losses that have so far not been exposed.” (The IMF puts “lots” at about $500 billion.”)

Something of a debate that emerged in the forums this morning was the question of why, if “the worst of the banking crisis is behind us” (a phrase tossed about repeatedly), credit flows remain impaired. In other words, if the banks really are on a sounder footing again, why don’t they start doing their job and lend more money?

The most lucid answer came from Jan Hatzius, chief US economist for Goldman Sachs. (Hatzius was among the few economists to correctly call the widespread effects of the US housing bust.) His reply to the question of impaired credit flows? Lack of demand.

Banks are not lending money because the private sector is not borrowing it. For instance, U.S. consumer spending in the second half of ‘08 fell by 4%—a huge drop in a short period of time. Consumer borrowing is falling and the U.S. savings rate, which had been negative for years, is positive and rising. So it’s not that there isn’t money to borrow anymore. Lack of credit supply was a “2007/08 issue,” Hatzius said. “Demand for credit is an ‘09 issue.”

Hatzius, who by the way came out on top of the Wall Street Journal’s economic forecaster rankings for ‘08, was more upbeat (in his way) about the US dollar. He said that he thinks concern over a “deluge of debt” undermining the U.S. Treasury is “overblown.” He pointed out that the US trade deficit has shrunk sharply in a very short period of time, so effectively private sector savings are funding the debt expansion in the States.

The economist was downright upbeat about Asia, however. When it comes to China, Hatzius said he tends not to rely on statistics solely out of China as they are hard to decipher or rely upon, but he does look at other Asian economies, like Korea’s. And “there’s no question that the Asian countries are coming back.” He suggested, in fact, that a classic V-shaped recovery is occurring in Asia right now, even as the West is waiting for the recovery to start.

Look for that around the end of the year…

But should we really get overheated about the $50-billion deficit, which represents about 3% of GDP?

Now, 50 billion is a lot of money to you and me, and more alarming for some is that Canada is going into deficit at all. Others charge that the finance minister has got his projections wrong so many times—first saying no deficit, then a small one, and now a larger one, all in the space of a few months—that Canadians can no longer trust him.

On the latter point: that’s not really fair, is it? Sure, Flaherty’s forecasts were wrong. But so were those of any number of policymakers, financial institutions, economists, soothsayers and tarot card readers. Perhaps we should call for the firing of all of them, too—but Nouriel Roubini (the only guy who was right about all this?) can’t do every job in the financial universe, can he?

As for the deficit question: seriously, it’s not that much money, at least not in in the great scheme of things.

I attended the Laurier School of Economics Outlook event this morning in Toronto, and one of the speakers was William Gale, vice-president and director of economic studies at the Washington-based Brookings Institution.

Here’s what he said about the controversy over Canada’s fiscal deficit of 3% of GDP: “If we ever got to that situation in the States, we’d have a party, declare victory and go home.”

He pointed out that the projected US deficit this year is 13% of GDP….

The other speaker, Sherry Cooper of BMO Financial Group, was in general quite bullish on the relative strength of the Canadian economy going forward. She also dismissed the deficit fearmongering, pointing out that Canadians somehow have got it into their heads that all government deficits are bad all the time.

“Our deficit is cyclical, not structural,” she said, and predicted that Canadian-dollar-denominated assets will outperform US-denominated assets for a long time.

“We’ve got nothing to worry about except our politicians,” Cooper said, “and the misperceptions of the public.”

Granted, there are lots of questions about the government’s stimulus plan and its effectiveness.

But when it comes to the mere fact of the deficit or the amount—what is there really to worry about?

Also, I’ve been itching to jump in on the AIG bonus saga in this space, but have instead dumped my thoughts into ink and paper–they’re in an Editor’s Note in the next issue. Basically, I argue along similar lines to Tom Watson’s probably unpopular take here.

Finally, as an MSM alert: is it just me, or are you starting to feel sorry for big newspapers? Not only are they shutting down or cutting back all over the place, but last night even Barack Obama dissed them. During his prime-time news conference, he did not as is usual presidential practice field questions from The Washington Post, the New York Times, the Chicago Tribune, the Wall Street  Journal, USA Today or the Los Angeles, reports Howard Kurtz, of the neglected WP. Instead, Obama called on not only the usual suspects from ABC, CBS, NBC, CNN, Fox News, but also reporters for Ebony, Stars and Stripes, the Washington Times (the capital’s second newspaper, with a fraction of the circulation of the WP), Univision and Agence France-Presse.

Expect a return of the Freedom Fries movement any day now…

“As you are probably aware, an economic stimulus package, drafted by the U.S. administration, is making its way through Congress. A number of amendments made by the House of Representatives and the Senate could have a negative impact on Canadian businesses. By applying strict “Buy American” provisions to some government procurement projects. These provisions mandate the use of only U.S. suppliers in these projects.

“The bill passed by Congress last night had “Buy American” provisions attached to steel and iron used in public works and public building projects. It is being further amended by the Senate to include manufactured goods and health information technology. This could shut-out Canadian companies from U.S. procurement projects. It could also result in other countries implementing similar measures. Protectionism will not help the world weather the current economic storm.

“For federal-level procurement, the United States is bound to international obligations forbidding such practices. However, the state level is not tied to these rules, even though they allow Canadian and other foreign companies to participate in the procurement market. Normally when “Buy American” provisions are applied to procurement projects, foreign companies can participate in the market if:

it is in the public’s best interest to use a  foreign supplier;
there is a lack of supply in the  U.S. market; or
domestic suppliers are more costly than foreign  companies (the general range is between 6% – 12% differential in  cost).

“Attached to the stimulus money flowing to the state-level governments are stricter “Buy American” provisions. The third exception is being amended to award a procurement contract to a U.S. supplier unless it will increase the project cost by more than 25 percent. This gives U.S. suppliers a substantial advantage over foreign competition, virtually blocking Canadian companies from the market.

“Unfortunately, a number of countries are erecting barriers to trade as part of their responses to the global recession. The impact of the United States Congress becoming more protectionist would inevitably be to fuel retaliatory measures in other countries that would delay economic recovery. It is exactly the wrong way to fight the recession and will harm both Canadian and U.S. companies.

“Canadian companies are active in the U.S. procurement market. We encourage members to work with your suppliers, customers, and if applicable, parent subsidiaries in the United States and to encourage them to actively speak out against these new provisions by contacting their local Senator. The stimulus bill is moving fast through Congress. The time to act is now.

“If you have any questions or comments, please don’t hesitate to contact our office.

Sincerely,
Perrin Beatty”

• A good piece by Anthony Faiola on the trade implications of the “Buy American” provisions in the various versions of the stimulus bill in the US Congress right now. http://www.washingtonpost.com/wp-dyn/content/article/2009/01/28/AR2009012804002.html?nav=hcmodule
The Senate version of the bill would limit stimulus funding only to projects with US-made equipment and goods. This is the dark side of fiscal action on the economy—protectionism in the guise of stimulus. A byproduct of measuring economic success by jobs instead of productivity. Trade disputes and retaliation in the form of protectionist measures elsewhere seem to be the likely outcomes—which will only aggravate the global slowdown.

• A Moody’s Investors Service report, out yesterday, on budget deficits and Canada’s government bond ratings. Upshot: even with a three-percentage-point increase in federal debt to GDP in 2009-10, to 31.6%, will not likely affect the Aaa rating.

• An article from NRC Handelsblad that spells out how the Dutch government is backing ING, the Netherlands’ biggest bank and insurer, to the tune of 21.6 billion euros—about $34 billion Canadian. The reason: to cover ING’s exposure to U.S. mortgage-backed securities that, a year ago, the company characterized as minimal.

The overall message was both stark and simple: the world is in the throes of an economic crisis that is unprecedented in its scope and potential severity, and governments have a vital role to play in helping those most hurt by the recession and in ensuring that the recovery is as quick and as robust as possible. If ever there was a time for smart, substantial and timely economic stimulus from government, that time is now.

Too bad Ottawa didn’t get the memo.

For anyone looking for significant new stimulus, the fiscal update that Finance Minister Jim Flaherty delivered yesterday was a major disappointment. Yeah, yeah, pledges to cut back on wasteful spending are always welcome. But where’s the payoff in terms of getting the economy going again?

And what is this government thinking? On the one hand, it has claimed that now is not the time for major new initiatives–those will have to wait for the ‘09 budget. On the other, it managed to work into the fiscal update a clause to rescind subsidies for federal political parties, which amounted to all of $27 million in 2006. So the government can manage the politically irritating and the trivial; it has yet to show it can manage, or even address, the biggest economic challenge of the 21st century.

Several weeks ago, my magazine called for an all-party, non-partisan, intergovernmental  approach to a crisis that will affect all Canadians, from the corporate boardroom to the shop floor. We have yet to see such leadership.

One hopes it is not too late, that there is method to this seeming madness, though with the threat of a nonconfidence vote now seeming very real, one wonders what that method could be. Maybe it makes some sense for Canada to wait on an economic package until some of the details of the US stimulus plan are settled, particularly with respect to the auto industry. But that’s no excuse for the government to make a move in what appears to be the wrong direction.

Canadians need action on the economy, and instead they might end up with an election, or a coalition government, that nobody really wants.

Last night, he was honoured by the Canadian International Council as “Globalist of the Year.” (The CIC is the think-tank backed by Jim Balsillie, co-CEO of RIM; last year, it named OECD secretary general Angel Gurria as globalist of the year.)

Siwei, 73, has represented China at the World Economic Forum in Davos for the past three years. He speaks softly, but his words carry weight. For instance, in late 2007, he made some remarks that were widely interpreted as a signal China would start diversifying out of its U.S. currency reserves, sparking a run on the greenback.

Speaking at last night’s event and, previously, at the annual conference of Centre for International Governance Innovation in Waterloo, Ont., over the weekend, Siwei was very careful with his words when talking about China’s currency reserves and the deepening economic crisis.

But on the latter topic, he did make a few predictions.

For one, he suggested that China’s GDP would grow next year by between 5.5% and 10%. That, to many, might seem wildly optimistic on the upper end.

On the other hand, Siwei, who called himself a “prudent optimist,” wasn’t all sweetness and light before the crowd of business, political and academic luminaries last night.

For one thing, he suggested that he thought the subprime crisis would work its way through the global financial system by the end of 2009.

For another: The good news is that Siwei figures the world economy will recover. The bad news is he doesn’t see it happening before the end of 2011.

Prudent, indeed.

Sideways market reaction suggests expectations of more rate cuts ahead.

I guess that’s good news?

CB senior writer John Gray twigged me to the “earmarks” in the US$700-billion bill, all intended to get those broad-minded congressfolk onside with the program. The spending fest includes new or extended tax breaks for:

- Film and Television Productions (Sec. 502)
- Wooden Arrows designed for use by children (Sec. 503)
- a six-page package of earmarks for litigants in the 1989 Exxon Valdez
incident, Alaska (Sec. 504)
- Virgin Island and Puerto Rican Rum (Section 308)
- American Samoa (Sec. 309)
- Mine Rescue Teams (Sec. 310)
- Mine Safety Equipment (Sec. 311)
- Domestic Production Activities in Puerto Rico (Sec. 312)
- Indian Tribes (Sec. 314, 315)
- Railroads (Sec. 316)
- Auto Racing Tracks (317)
- the District of Columbia (Sec. 322)
- Wool Research (Sec. 325)

John asks: “What the hell is wool research?”

Even in the grip of the greatest crisis to shake the U.S. economy in 75 years, there is a little somethin’ left over for pork-barreling.

Maybe they’re not the greatest economic thinkers of their time, but at least the U.S. representatives who voted down the bill know that all politics is local, as Tip O’Neill famously said.

The same guys who pushed through a farm bill that continues to subsidize wealthy farmers—despite rising food costs and despite a veto (twice) from the President this spring—are now clearly more interested in saving their political hides than in ending the economic bloodbath on Wall Street, Main Street and a whole bunch of other streets in the States and around the world.

Say what you will, but you can’t charge them with inconsistency.

No wonder both Obama and McCain were soft-peddling the bailout package in the recent presidential debate—neither of them wanted to get too enthusiastic about what they must have known was a stinker.

Unlike the US, we have the uptick (or last-sale) rule here in Canada which is supposed to prevent the kind of “piling on” that the US and UK bans are supposed to put a stop to. (Read: piling on to falling financials.) Given, though, that some of the financials protected from shorts in the States are interlisted in Toronto, the OSC is worried about flood of cross-border action—”regulatory arbitrage,” as OSC chair David Wilson puts it in the release.

Here’s the list of companies on the OSC’s no-short list:

Aberdeen Asia-Pacific Income Investment Company Ltd., Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Fairfax Financial Holdings Limited, Kingsway Financial Services Inc., Manulife Financial Corporation, Quest Capital Corp., Royal Bank of Canada, Sun Life Financial Inc., Thomas Weisel Partners Group Inc., The Toronto-Dominion Bank, and Merrill Lynch & Co., Canada Ltd.

 Someone asked me what I thought was going on, and my short answer was: “I don’t know.”

Is this the end of the investment banking model? Is this a vote of nonconfidence in the global financial system? Possibly.

But against that one has to weigh the reality that Wall Street–and Bay Street and the City, along with the media who cover them–tend to believe that the economic world begins and ends at their borders. What effect the collapse of Lehman and sale of Merrill, big though they are, will have on the real economy remains to be seen.

Two interesting observations did emerge last night around the table. One is that hard times in the financial services capitals will have a ripple effect on real estate–rich people (brokers, bankers, traders) thrown out of work in New York will push prices down there and across the U.S. Same in England and Canada, one supposes–aggravating an already crumbling housing market in the States and overseas, maybe here too.

Another observation: the purchase of parts of Lehman by Barclays and the sale of Merrill to Bank of America repeats, in some ways, the kind of consolidation that occurred here in Canada more than a decade ago. Now, as banks bought out brokerage firms here, it led to much grumbling among die-hard Bay Street cowboys about working for a (boring, bureaucratic) bank.

One wonders how the honchoes at Lehman and Merrill are going to like it….

Two favourites: one from March 2007 about how Lehman saw opportunity in the subprime meltdown, and another from December ‘07, in which Lehman “escapes subprime fallout.” The latter includes this keeper quote from Chris O’Meara, Lehman’s head of global risk management: “We believe we have done a good job of managing our risks.”

As I write (near 3 pm on Sept. 11), Lehman stock (NYSE: LEH) is trading at US$4.39. Down $2.86 on the day. Down 68.4% over 12 months. Toxic real estate investments strike again.

The GDP figures released by Statistics Canada last week were widely presented as a good news/bad news proposition in the media. On the one hand, the numbers stunk — the economy grew at an annualized rate of just 0.3% in the second quarter. But, on the other hand, 0.3% is still growth, and suggest that Canada has so far eluded a technical recession (broadly though inaccurately defined, by everyone in general but no one in particular, as two quarters of economic contraction).

So should business-watchers fret, or breathe a sigh of relief? Well, as David Wolf, occasional columnist for Canadian Business, head of Canadian economics and chief strategist for Merrill Lynch Canada, recently pointed out, the situation for business might be more bleak than even the bleak GDP numbers suggest.

Government spending in Q2 accounted for a 1.0% increase in GDP — which means that nongovernment spending (by you, me, the corner store, the factory in the next county) shrank in the second quarter. Same situation in the previous quarter. Consider that such private sector activity accounts for about 80% of the economy, and you get the picture. It’s not pretty.

How long can Canadian governments delay a full-blown recession? That’s one question.

The other is, what would have happened if our governments, rather than sitting on surpluses for the past few years, had had the foresight to initiate meaningful, swift and smart tax cuts (ie, not the GST reduction) back when they had the chance?

Government is keeping the good times going by spending more (and spending, by the way, has at the federal level been outpacing economic growth for years). Will this be an election issue? One can only hope… 

After all, these talks, which were supposed to define the development agenda of the WTO, have been going, going, going, but not quite gone, almost since they started seven years ago. Two years ago, a previous last-ditch attempt at reaching “modalities” (trade-speak for agreements among the 150-odd member countries on ways to move forward) failed in Geneva (see my column from summer 2006).

Yesterday, renewed talks in Geneva failed after India—a newish power in the developing country camp—squashed the negotiations on agriculture (which are linked to negotiations on services and manufactured goods) when it refused to give in on its demand for significant “emergency” powers to prevent a flood of cheap food imports damaging its farming sector. India’s chief negotiator, Kamal Nath, claimed to have the support of dozens of other developing countries in standing firm on such “special security measures,” or SSMs, against demands to water them down from the United States.

Much chatter out there seems to be about whether this spells the end of the Doha round. (If you want to hear WTO director general Pascal Lamy’s inimitably dry take on the collapse, check this out.) I attended the Hong Kong ministerial meeting back in December 2005, and my sense (for what it’s worth) is that it ain’t over till it’s over. They’ll talk again, and will creep towards a resolution. The question is, will any resolution even matter by the time they get around to one?

I’m not going to get into the obvious merits of free trade in agriculture, services and goods here. I’ve done it before ad nauseam, as have many people who are smarter than me. (For instance, see Andrew Coyne’s recent post at macleans.ca, which lists some of Canada’s more egregious transgressions against the free trade cause.)

Let’s just for the moment point out some ironies. For one, what’s the logic of defending a farming community against cheap food imports, all in the name of food security, in a nation that cannot feed its people? According to the UN World Food Programme, India is home to nearly half of the world’s hungry; more than a third of the population consumes less than 80% of minimum energy requirements—a threshold below which the WFP considers people to be, ironically, “food-insecure.”

On the other hand, what’s the logic of going to the wall over what is, from the U.S. point of view, clearly a minor point of principle, when so much else is at stake in terms of opening up important markets to American goods and services? It makes no sense—unless, as a cynic might charge, the point is to maintain the politically expedient but economically appalling level of farm support in the States, as embodied in the most recent U.S. Farm Bill?

The convenient myth among politicos and some trade-watchers is that Doha doesn’t matter, that it’s just a bunch of bureaucratic polyannas getting together to discuss how many modalities can dance in a blue box. But the inconvenient reality is that real people (consumers here, the poor around the world) pay dearly for the protectionism that keeps free trade an elusive dream—and the Doha round always having to come back from the dead.

What’s this mean, over the long term? Well, like much of what the Bank of Canada does, maybe not very much. But in some respects it might well be an encouraging sign.

For one thing, it suggests that worry over the economy’s recent poor performance, particularly in Ontario, might be overblown—or rather that the slowdown is not likely to last much longer. (It might also suggest that the liquidity crisis/credit crunch that has gripped the financial services industry might be bottoming out, at least in the BoC’s eyes.)

The bank continues to predict a recovery in economic growth by later this year and accelerating next year, so the decision not to lower suggests confidence in that prediction.

The bank has hereby kept its powder dry if the broad economy starts to tank. Clearly, Carney’s BoC chose prudence over alarm at a time when both responses might seem equally appropriate. And Carney clearly hasn’t bowed to interests in hard-bitten Ontario to tailor economic policy to a single region (or sector).

The first job of the Bank is to control inflation, and it clearly is taking the job seriously.

That’s a good thing. Isn’t it?

By way of getting questions about U.S. politics out of the way, Smith (who’s from Austin, the state capital of Texas, where folks like to talk about how THEIR capitol dome is a foot higher than the one in Washington) gave answers to the questions he hears most frequently on the speaking circuit.

Here they are:
1) Yes, he will.
2) No, she won’t.
And 3) No country for old men.

The questions to which those were the answers are:
1) Will Obama be the Democratic candidate? (This one got answered on June 3.)
2) Will Hillary agree to be Obama’s running mate? (Smith thinks not.)
3) Can John McCain win the election?

Most interesting was Smith’s take on Question No. 3. He argues that there is no way McCain can beat Obama, pointing to McCain’s inside-the-Beltway mentality and career, and of course his age. Smith says there is a thirst for change in America today, and believes Obama will win the election—and that it won’t even be close. He even thinks Texas, a red state if there ever was one, could be in play come November.

What’s this mean for Canada? Well, as always, time will tell. But anybody who’s been reading the posts here and in the magazine by Rachel Pulfer, our U.S. correspondent, knows that McCain is pro-free trade and Obama is—well, who really knows?

Of course, there’s more to the Canada-US relationship than NAFTA, and Obama might well come to his senses on the issue of reopening NAFTA or pulling out of existing U.S. trade agreements elsewhere—once or if he’s elected, that is.

* Of Texas, that is.

Turns out those denials weren’t convincing enough to dissuade Ohio delegates from backing Hillary Clinton in the March 4 primary. And in the wake of Obama’s loss, the leak was bearing part of the blame, highlighting (as it did) the nontrivial question of whether President Obama would practise in office what he preached on the hustings.

This is as it should be. Questions of character, not to mention the veracity of campaign rhetoric, are fair game in politics. If they cost a candidate points in Ohio, then so be it.

But what I can’t figure out for the life of me is why, here in Canada, there has been so much finger-pointing and accusations over who leaked the memo and how he or she should pay for the indiscretion.

What’s the crime here, exactly?

Canadians have a vital self-interest in the NAFTA debate in the U.S. election—it’s our treaty, too, after all. And yes, while it’s important for our government to respect that process and let it run its course, it’s more important that Canadians are well-informed about what’s at stake, what’s real—and what’s not. (In the upcoming issue of the magazine, Canadian Business’s U.S. correspondent Rachel Pulfer gets into these questions in detail.)

In other words, Canada’s self-interest trumps that of U.S. politicians. Sorry, Obama, it just does.

What I find strange about coverage of l’affaire du memo is how few people are talking about the most important point: whether it’s true or not.

After all, this is not just a political story. It’s also about how a potential leader of the United States envisions the economic future of the continent, of which I like to think Canada is an important part. The Democrats’ anti-NAFTA platform is a policy story—one that’s far more important than any political damage wrought on either side of the border by a leaked memo.

But such considerations apparently haven’t stopped the Prime Minister, the Opposition and the NDP from falling over themselves to declare outrage at the leak—the PM promising a Privy Council investigation, the Liberals calling for the resignation of Stephen Harper’s top aide, and the NDP calling for a full-scale RCMP investigation.

Maybe, rather than who leaked what, they should care more about the answer to this question: How far, exactly, would a Democratic president go to reopen NAFTA, and how much would it jeopardize our trade relationship with the United States?

Maybe, by making public a document that provides a clue to that mystery, whoever leaked the NAFTA-gate memo did us all a huge service.

The report, written by economics strategist Millan Mulraine and entitled “What’s behind the Canadian manufacturing recession?” includes some compelling observations that have largely been ignored in recent debates about Canada’s ailing manufacturers.

For one, the report places the decline of Canadian manufacturing, both in terms of job share and output share of the overall economy, in the context of a global phenomenon that has seen similar declines in all industrialized countries in recent years. For another, it shows that the much-bemoaned currency effect, while significant, has been “generally overstated.”

More tellingly, the report points out that labour productivity gains in manufacturing have outpaced those in the general economy, but that these gains haven’t been enough to keep up with the United States.

Why? Mulraine notes that while the rising loonie makes it cheaper for companies to invest in now-lower-priced equipment and technology, in fact capital expenditures per employee in the manufacturing sector have badly lagged other businesses. “While there is evidence to suggest that the Canadian business community as a whole may not have fully exploited this opportunity [provided by currency appreciation], the performance of the manufacturing sector in this regard has been worse than the national average.”

Does this matter? Given that (as the report notes) U.S. manufacturing productivity has risen by more than 30% since 2001 while Canada’s has risen by not quite 10%, and that over the same period unit labour costs in the States have declined while Canada’s have gone up—well, as Mulraine concludes: “We expect the adjustments in the Canadian manufacturing sector to continue.”