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CIBC report: Canada obtains Manufacturing job gains

While Canada will have more manufacturing jobs added to its economy in the coming months relative to its U.S. counterparts, those gains may be fleeting as competition stiffens south of the border, a new report from one of Canada's major banks says.

In a report released yesterday by CIBC World Markets Inc., the financial institution notes that although manufacturing sectors in both countries are "showing signs of life," the gains in the United States are "not only stronger, but also much more capital intensive," which is likely to hinder Canada's competitive position in a post-recession economy.

Perhaps Canada's manufacturing sector is aware of what's ahead, and have officially asked Finance Minister Jim Flaherty to extend a tax break, by another five years, that would allow companies to quickly writeoff machinery. The measure is set to expire at the end of 2011.

The tax measure "accelerates capital investment in both production facilities and equipment - (and) for that reason, it is an important and positive tax measure that will help close Canada's productivity gap with other countries, a policy objective that we know is a priority for you and for the government," wrote Jayson Myers, head of the Canadian Manufacturers and Exporters, in a latter to Flaherty sent this week.

As it happened, a survey released yesterday by Statistics Canada suggested manufacturers plan on spending 14.6 per cent more on non-residential construction and machinery in 2010.

The CIBC report, written by senior economist Benjamin Tal, says average capital intensity in Canada's manufacturing sector is 40 per cent lower than that of the United States, which means manufacturing employment will "probably" rise fast here in the near term.

"However, given the increased prevalence of better-capitalized and more efficient production facilities stateside, Canadian manufacturers will find it even more difficult to compete when the dust settles," Tal said.

The "radical restructuring" of the U.S. industry means that "much more is being produced with less labour," putting the U.S. on a strong, upward trajectory in spite of the lack of a corresponding rise in employment.

A number of commentators, among them the Conference Board of Canada, have said Canadian companies need to boost their investments in machinery and equipment in order to boost productivity levels. (Financial Post)

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