The Conference Board of Canada’s Leading Indicator of Industry Profitability declined in July for the first time in almost a year, suggesting a weakening in Canadian corporate profitability over the next six months. The July result is based on average data obtained before the global financial turbulence earlier this month.
“The dismal economic recovery south of the border, as well as supply-chain disruptions linked to the Japanese earthquake and the dampening effects of rising inflation on consumer spending have all contributed to the deteriorating profitability outlook,” said Lin Ai, economist with the Conference Board of Canada.
After recording no growth in the previous two months, the indicator recorded a small decline of 0.1% in July. As well, an increasing number of industries are recording declines in their indices. Of the 49 industries covered, 18 recorded a drop in their indices in July, the highest number since the fall of 2009.
Many Canadian manufacturing industries, which are heavily dependent on exports to the U.S., experienced further drops in their indices last month. However, the weakening outlook extends beyond the manufacturing sector. Service industries such as insurance and real estate have also begun to see decreases in their indices. Factors include lower returns on investment portfolios as a result of the declining stock market, and weakening consumer spending due to rising debt burdens and declining confidence.
As well, some producers of raw materials have seen their indices decline. The agriculture and forestry industry was negatively affected by the soggy spring in the prairies, and the mining industry has suffered from flooding and wildfires in northern Alberta and Ontario.