Factory activity slumps

Activity in Canada’s manufacturing sector is seeing its longest slowdown in seven years thanks to a drop in output, new orders, and purchasing activity, per Reuters.

But before you doze back off to sleep: Manufacturing is a big deal for the economy. The sector directly accounts for 10% of Canada’s total gross domestic product (GDP), 9.3% of employment (1.5 million people), and indirectly impacts 30% of total economic activity.

  • Manufacturers are struggling with high commodity prices—namely energy, food, and minerals—and have been passing the hikes to consumers in the last year.

Why it matters: Slowing growth in the sector is bad news for Canada’s overall GDP growth. It also paints a picture of broad consumer sentiment towards the economy going into 2023 (which, no surprise, is looking grim).

  • Meanwhile, companies are still sitting on excess inventories, which continue to rise as sales fall, and will have to start cutting production to address the imbalance.
  • At the same time, a surplus of stuff could push down prices and help lower inflation.

Big picture: As consumers brace for a potential recession, demand will likely continue to shrink, per The Conference Board of CanadaThat means consumers will put off big-ticket purchases, and businesses will hesitate to expand.