Stunning charts of how investment in industrial machinery & equipment collapsed a decade ago in Canada but stayed on track in the US.
By Wolf Richter for WOLF STREET.
“According to the latest national accounts data, real investment in industrial machinery & equipment [in Canada] fell in Q2 to its lowest level on record (data back to 1981). As today’s Hot Chart shows, the divergence with the U.S. is nothing short of appalling,” wrote Stéfane Marion and Matthieu Arseneau, at Economics and Strategy, National Bank of Canada, in a note sent to subscribers today.
“How did we get here? Years of excessive regulation, and a chronic lack of ambition by successive governments in promoting domestic transformation of our natural resources—recently made worse by Washington’s protectionist agenda,” they wrote.
Their note included this stunning chart of investment in industrial machinery and equipment in the US and in Canada. Investment in both countries had roughly tracked on a similar trend for decades through 2012, and then the bottom fell out in Canada, while investment in the US continued roughly along trend.
The analysts wrote in their note: “We’ve written about the plight of Canada’s industrial sector [here, here, and here].” The first of their linked reports includes these two charts:
Private nonresidential investment, inflation adjusted:
Net capital stock in manufacturing, inflation adjusted:
In their note today, the analysts wrote:
“That failure has eroded Canada’s manufacturing base and left us at risk of becoming irrelevant in global supply chains. To Ottawa’s credit, the pledge to quickly ramp up military spending to 3.5%–5% of GDP could help catalyze a reindustrialization. But time is of the essence—if we are to salvage what’s left of the sector.
“What Canada needs is a wartime multi-pronged strategy that ends the dithering: a competitive tax regime, a sweeping reduction in red tape, and clear laws on how we intend to develop our natural resources. Clarence Decatur Howe—the architect of Canadian industrialization—showed what determined leadership can achieve. Canada must now draw on that inspiration to rebuild its industrial base before it’s too late.”
But Canada sure knows who to invest in, push, promote, subsidize, and build a housing bubble that ranks among the world’s most splendid, if not the most splendid, that not even the Financial Crisis could slow for more than a couple of quarters, but that has now run into trouble, at least in Greater Toronto:
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Can you do the same with WTO entry, GFC, QE, and US vs China manufacturing? My guess is the charts are similar.
Canada went all in on inflating assets, shifting green, pumping housing prices, and importing goods—essentially financializing its economy vs the USA.
Isn’t this the same as what the US has done compared with China?
“Isn’t this the same as what the US has done compared with China?”
yes, the US looks pretty good in that regard compared to Canada, but abysmal compared to China.
Can-adians have become Can’t-adians? Just call 1-800-Mex-I-Can for a bit of help.
We will see if Mark Carney has the right stuff to redirect the Canadian economy, certainly his predecessor did not, but the problem goes back further than the term of his predecessor. Plus Carney has a history of supporting his predecessor’s policies. He calls himself a pragmatist, but his track record is much more that of a controlling ideologue. It is complicated. A lamentable situation, for sure.
Carney was in the co-pilot seat for a majority of the downward years. Not just an advisor to Trudeau but as the man in charge of the Bank of Canada, while wanting money printing to bail out the economy after 2008.
Ohhhhh Canada…Let me hear you sing…
Canada does not need to make, produce anything. They all can exchange hyper inflated homes to each other and make money. No need for this industrial thing :-).
Thanks WR for this report!
Maybe when Trump finishes his presidency, he can become Prime Minister of Canada and Make Canada Great Again.
This comment is amazing
Oh! Made me laugh!
I’d say this is a good joke, but it’s more of a reality than Canadians would like to admit. The only changes happening this year are pushed on the Canadian gov’t by the US gov’t via trade talks.
Read this recently: “ At 6.4 per cent of GDP, the U.S. fiscal deficit is four times Canada’s in proportionate terms and is on track to get worse.” (Toronto Globe & Mail)
Anyhow, a recession is looking more likely than not for both Canada and the US, and the question is whether or not in this new debt-ridden environment, with Canadian real estate in a huge bubble, our “safe” Banks will hold up.
In Canada, a big part of the government debt is with the provinces. Provinces have a HUGE amount of debt. And they’re continuing to increase their debts in leaps and bounds.
When you combine US federal, state, and local net issuance of debt and compare it to Canadian federal and provincial net issuance of debt over the past four quarters, Canada is borrowing more than the US, in terms of % of GDP.
From Economics and Strategy, same shop as the charts above:
It was the RADICAL LEFTLEANING LIBERALS under TRUDEAU who were the architets of Canadas Decline .. just as was the case in EUROPE
Yep, those lefties don’t just want your money, they want your SOUL.
Hey, you must know some good Ole and Lars jokes. right?
About thirty years ago I found myself asking why the western provinces of Canada couldn’t become US states. Then Quebec splits off and Ontario – where 60-70% of Canadians live and all the political power resides – is the new European welfare state type Canada. Seems like louder voices than mine are saying some of the same things now. Maybe this hard economic data shows it’s a better idea now than ever.
2015 is a stand out year in those charts.
Yes, Trudeau became a PM, a sad day for Canada.
WSJ: California Trucking Firms Go Under, Fueling Wider Industry Fears
No recovery from years long slump in sight as imports, factory activity and other drivers of demand sag
I gave up covering smaller trucking companies that go bankrupt years ago. There are just too many of them. They’re kind of like restaurants. New ones come, others go.
The 1990s slump was all due to NAFTA and the crazy Canadian central banker who left interest rates way too high, he should have made a movie “I see inflation even when its not there”. Canada recovered much more slowly than the US and the Canadian Government did not help with big spending cuts. Manufacturing was pouring out of Ontario in the 1990s.
The big surge in the 2010s is from the massive growth in investments in conventional and tar sand oil with much, much higher oil prices. Things were crazy in Alberta back in those days. That investment has slumped with the collapse in the oil price in 2014/2015.
Apart from digging and drilling holes in the ground and growing food and trees there really isn’t that much manufacturing in Canada. And why invest in productivity when you can get reams of cheap labour coming off the planes every week?
Regulatory tale of 3 countries: Patented simple surgical device that lowers the cost of a common surgical procedure. Prototype disposable tip cost usd$300 in the usa with production tips quoted $30/piece. This was not commercially viable. Chinese prototypes provided free with top quality production units @ $0.30/piece. FDA clearance to sell in the USA was difficult until a great attorney beat down a woke activist FDA examiner in front of his boss such that the boss cleared our device. Then requested our regulatory consultant to prepare the submission for Canada regulatory approval. Consultant said “fugetaboutit” as Canadian regulatory framework is impossible to deal with. Canadian docs wanted the device but had to explain about their government “protections”. Panicked first (and best) by selling all USA real estate in 2022, retired and currently relaxing in beautiful, modern and immaculate Xiamen, China where 5 star ocean view hotel rooms cost $70/night, dinner for two at a nice restaurant is $10 and taxi rides in new BYD EVs cost $2. Midnight strolls everywhere are perfectly safe. Put your wallet/purse down, walk away, no one touches it. No homeless, no protesters, no tweakers. Lovin it.
How’s the weather? Do you need to speak the local language?
@Brian Here in Xiamen the weather is like Houston. For China weather in general, its similar to the corresponding latitude in the USA. They even have Hainan island down south known as the “Hawaii of China” at a 75% discount.
@Brian Learning Mandarin helps, and is fun, but not required. Hotels have English speakers. Google Translate and local translator apps fill in where needed.
But Canada is going to hit their zero emission targets a lot easier without any industry. They may go down in a ball of fire but at least they did their bit to make world a better place.
It’s amazing that a place with so many natural resources and not a large population can be mismanaged by government so badly. What I’m not clear about Canada is who is profiting or is no one really making any revenue because governments have strangled industries?
“That failure has eroded Canada’s manufacturing base and left us at risk of becoming irrelevant in global supply chains. To Ottawa’s credit, the pledge to quickly ramp up military spending to 3.5%–5% of GDP could help catalyze a reindustrialization. But time is of the essence—if we are to salvage what’s left of the sector. ”
Lots of that military spending hopium going around. It never factors in the toll it would take on an economy that actually has to seriously use the firepower in a throw-down.
Agreed. Not to mention that military spending is like regulatory spending in that it doesn’t actually produce anything that society can use and benefit from…unless they sell the hardware via exports.