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Canadian Manufacturing & Productivity – a mixed bag

First the good news:  Canada’s industrial capacity utilization rose in the second quarter of 2010, still well below its peak, but any increase is good news (although a 0.2% increase is not exactly something to write home about).  The low of 68.1% was reached about a year ago, and the high of 83.1% was reached in Q1/2007.  The BoC anticipates that the capacity utilization for Canada’s manufacturing will continue to rise, but with the weak American economy its recovery will be slow.  Another bright signal was the increase in Canadian productivity, whereas the market was expecting a 0.5% decline the “reality” was of a 0.5% increase in productivity (there are real issues in measuring productivity – especially for services). 

Now the bad news:  Canadian manufacturing sales “unexpectedly” declined by nearly 1% in July according to StatsCan.  The market had expected a 0.2% rise and was therefore off by 1.1%.  The biggest “fail” were unsurprisingly vehicles sales and furniture (two sector greatly affected by U.S. demand). Looking forward the news was even worse, with new order decline of nearly 4% -- again core “fail” sector was the automobile sector….

So the news is mixed, on one side productivity rose (employment growth – see last post is clearly slowing) and the “real economy” data is off a little.  The Japanese action on the currency market overnight could be a one-off, but these things rarely are.  Our firm’s best guess is that the USD will strengthen against most currencies (Euro,Yen, Yuan) and my guess that the material/energy complex will be off a little which “should” weaken the CAD, but again intervention by the BoJ makes the currency map had to read.

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