Factory numbers dull debate over 'Dutch disease'

Talk about great timing.

In case you missed it, in today's Globe, my colleague Barrie McKenna reported on a trend-bucking study that casts doubt on whether Canada is really suffering from the dreaded "Dutch disease," essentially the notion that as long as strong global demand for resources like oil boosts the currency, manufacturers in Ontario and Quebec can't compete.

According to the study, by the Institute for Research on Public Policy, several key manufacturing industries often linked to this politically charged phenomenon show no symptoms of damage that's attributable to the currency. So at best, its authors conclude, Canada has a "mild case" of the disease. Eric Lascelles, chief economist at RBC Global Asset Management, comes to similar conclusions, arguing that competitiveness issues facing manufacturers are more complicated than the loonie, and also that they are not Canada's biggest economic problem.

Given that it has become a pet issue for Opposition Leader Thomas Mulcair and Ontario Premier Dalton McGuinty, the Dutch disease/East-West divide argument is far from settled and will focus political debate for years to come.

For one month, though, those who play down the problem would seem to have the upper hand. Statistics Canada reported Wednesday that in March, shipments by manufacturers surged 1.9 per cent, almost five times as much as expected and the fastest gain in six months. Even better, while the headline number measures the increase in the total value of factory sales, which is often inflated by lofty oil prices, in March the volume of sales also rose 1.9 per cent -- the most in eight months.

Unfilled orders rose to a three-year high, and new orders also rose, indicating decent momentum going forward. Already, factory sales are now 5.9 per cent higher than a year earlier, and the fact sales rose in 13 of 21 categories even as petroleum and coal surged 4.5 per cent to the highest level since July, 2008, suggests that the oil sands do not have to thrive at the expense of other sectors. Other big gains came in the aerospace industry, which was expected to drop back after a huge increase in the previous month, as well as chemicals and even automobiles.

And how about Ontario and Quebec, Canada's struggling industrial heartland?

Neither province came close to the mammoth 21-per cent increase in New Brunswick, but Ontario saw a healthy 1.9-per cent rise and Quebec gained 1.2 per cent.

Still, the March increase came after two monthly declines. Also, it's undeniable that manufacturers have had a very rough time adapting to a new global economic climate, in which they need to reorient themselves to tap into demand in emerging markets and rely less on the U.S. and Europe, amid increasingly fierce competition from exporters in other nations who are attempting to do the same thing.

Much easier said than done, and not an overnight process for sure, but this new climate is why Bank of Canada Governor Mark Carney and other policy makers have argued repeatedly that central Canadian factories should, as much as possible, find ways to make things that are useful to the ever-growing resource sector.

On balance, the oil-soaked loonie is a hindrance -- both for factories and for the economy as a whole. And there clearly needs to be a stepped-up effort to help workers in the troubled sectors learn new skills so they can stay employed in manufacturing, to accompany the range of existing measures aimed at helping factories delve into new lines of business.

But that's not the same as saying that oil-sands development always has an inverse effect on manufacturers elsewhere in the country, a notion that the March factory numbers argue against.