Chilling references to a potential (likely) financial crisis in Canada keep cropping up in official statistical data releases. First it was concerns about the housing bubble there and the high level of personal debt to income, now it’s about how hard manufacturing is getting hit there in spite of the loonie (Canadian dollar) dropping 17% against the US dollar in the past 15 months. It really begs the question “Oh Canada, Are You Prepared For What’s Coming?”
The above edited excerpts, and the edited/paraphrased copy below, come from an article* by Wolf Richter (wolfstreet.com) originally entitled Manufacturing in Canada Sags, Triggers Chilling References to Financial Crisis which can be read in its entirety HERE.
Falling Manufacturing Sales
Originally the hope was that a lower Canadian dollar would boost manufacturing through increased exports but the theory didn’t work out. Manufacturing sales fell 2.1% in April, seasonally and inflation adjusted and are now down 7.3% from July 2014, the largest and steepest such decline since the financial crisis of 2008. As a result, inventories have been piling up causing the all-important inventory-to-sales ratio to jump to the highest level since July 2009.
Soaring Inventory-to-Sales Ratio
From the business point of view, growing inventories and lagging sales can turn into a capital-intensive nightmare. Inventory is money. There are only two ways to bring inventories down: increase sales or cut back on orders. If businesses are not able to crank up sales across the entire country to bring down these inventories, they’ll trim their orders to suppliers, which tends to ricochet through the broader economy and trigger all kinds of secondary fireworks. Oh, and new orders fell 5.6% in April!
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