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Canada: Profits Decline In Q2 On Margin Erosion

ByThe National Bank of Canada
Published 08/30/2012, 08:03 AM
Updated 05/14/2017, 06:45 AM
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The profitability of Canadian corporations is deteriorating. According to just-released data from Statistics Canada, operating earnings of non-financial corporations (privately and publicly owned) fell by 5% sequentially in Q2 2012. As a result of this drop, the second in a row, operating profits of non-financial corporations have now turned negative on a year/year basis. As today’s Hot Chart shows, this is the first such happening since the 2008-2009 recession. Obviously, conditions are not as bad as they were back then. So what’s causing the drop? Margin erosion, particularly in the non-energy manufacturing sector. As shown, margins have contracted significantly, falling to a two-year low of 6% in Q2 2012 (that’s down 14% from Q2 2011). This contrasts with the situation in the U.S. where margins remain on an uptrend (data as of Q1 2012). A slowing economy (both domestic and global) coupled with a strong currency are taking their toll on Canadian manufacturers. This is likely to negatively impact hiring and CAPEX. Recall that Canadian factories have accounted for 56% of total job creation so far in 2012 (that’s five times their normal share of total employment).
Profits Decline In Q2 On Margin Erosion

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