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Auto industry should help drive Ontario economy faster in 2012

04/13/2012 by John Clinkard

The recently-announced provincial budget clearly highlighted the fiscal and economic challenges which the province of Ontario is facing over the next several years. However, despite these challenges there are a number of indicators which suggest that the province’s economic prospects are taking a decided turn for the better.

First, despite the headwinds to trade caused by the relative strength of the Canadian dollar vis a vis the U.S. dollar, the total value of exports over the past six months has risen by 9.3% with the major (54.8%) contribution coming from a 15.7% increase in exports of motor vehicles and parts.

While part of this pickup in auto exports was due to the rebound in auto sales following a production hiatus caused by the tsunami in Japan, a significant portion is due to the very healthy 11% year-to-date acceleration in U.S. sales of domestic cars. This stems from a steady increase in U.S. employment through the final quarter of 2011 and into 2012 and a concomitant strengthening in U.S. consumer confidence.

Looking forward, there is evidence supplied by the latest Royal Bank of Canada Canadian Manufacturing Purchasing Managers’ Index that the impact of this strengthening in U.S. demand will contribute to stronger growth of manufacturing in Canada in general and particularly in Ontario, given that the province accounts for close to 50% of the country’s total manufacturing output.

Moreover, this improving outlook for manufacturing was reinforced by an announcement by Toyota of plans to boost auto production by one third and hire 400 workers in Woodstock. Also, Ford is about to recall 100 workers to begin a third shift at its Essex engine plant in Windsor.

Consistent with this improvement in the outlook for manufacturing, full-time employment in the province is up by 142,000 over the past six months while the most recent Index of Consumer Confidence increased by 3.7 points to 69.1 in March, its highest point since July of 2011.

At the same time, the gain in hiring plans, reflected by the recent increase in the Index of Helpwanted Advertising and in the Manpower Employment Outlook Survey, point to further growth of employment into the second half of the year.

In light of the steady gradual strengthening in the outlook for the U.S. and given the improving indicators of domestic activity over the past several months, growth in the province should average in the range of 2.0% to 3.0% in 2012 and in 2013, somewhat stronger than the 1.8% it recorded in 2011.

Ontario employment vs U.S. Purchasing Managers’ Index

Ontario employment vs U.S. Purchasing Managers’ Index
Data sources: Statistics Canada, U.S. Institute of Supply Management/Chart: Reed Construction Data, CanaData.


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