Manufacturing shipments fall 0.7

June 13, 2007

The emerging slump in manufacturing in Canada due to the high Canadian dollar and the shortfall in aggregate demand because of excessive interest rates and stagnant employment in non resource sectors of the   economy is beginning to be made clear in the most recent report from Statistics Canada which appeared today.
Overall factory shipments in manufacturing fell 0.6 % in April. The fall was most pronounced in durable goods which fell 1.7 %.

Here a decline in automotives and aeronautics explain the negative numbers.In addition there is on going evidence of the failure of the retail sector to pass on the cost savings on products imported from the US to consumers. Douglas Porter deputy chief economist at BMO Nesbitt Burns points out in an article in the Globe and Mail p.B5 written by Tavia Grant and Roma Luciw that the unwillingness of retailers to pass on the cost savings to consumers but pocket the profits themselves has resulted in a higher core inflation rate than would be the case if true market competition prevailed.

If retailers behaved as the laissez-faire market theory wrongly predicts then the inflation rate would be 0.5% lower and well within the central   bank's target and their rationale for raising interest rates would evaporate. However, if the Bank of Canada blithely ignores the real economy and obsesses over its theories of inflation it will do further damage to   manufacturing and the Canadian economy by unwisely raising the interest rates next month.


The markets' real behaviour is quite in line with the research of both John Maynard Keynes and contemporaries like Joe Stiglitz and other post Keynesian economists who have pointed out that markets are   imperfect and frictions and irrational behaviour often prevail.