CME’s Myers paints economic future at CFPA meeting

According to a survey conducted by the CME in January 2009, two-thirds of companies polled reported their orders had fallen since October 2008, with 21 percent saying orders had fallen by 30 percent or more. In addition, 42 percent said they expected orders to fall in the coming three months with a corresponding number expecting to cut staff over the same time period.

“In a number of firms, what we are seeing is that they are fulfilling current orders but aren’t too clear if they will have orders going into the second quarter,” he said. “That’s when production and employment is cut. We haven’t seen the impact of this yet, but we will see the impact in the second quarter, which will have a big impact on consumer spending and confidence in Canada.”

The survey also showed that 20 percent of manufacturers are at 90 percent or more of their lines of credit. In addition, 19 percent of those surveyed also expressed difficulty acquiring financing. Of that 19 percent, the most common reason given for being turned down was that their industry sectors were too risky.

“There are two issues here,” he said. “As orders fall, they’ll be using more cash from their line of credit. But as orders pick up, manufacturers will be spending more on materials and ramping up production without receivables to offset that. So there will be a second phase to this draw on credit. I think this is the most important challenge that the sector faces today.”

On the upside, Myers said present economic conditions are creating opportunities. For companies with cash, for example, many acquisition targets have likely become more affordable. In addition, the stimulus package funding for infrastructure projects and energy industries (e.g. renewable, smart grid, nuclear, oil sands) opens opportunities for new product introductions.

“If there is one key message that needs to come out from the financial meltdown, it’s that you can’t create value simply by spinning more and more debt around,” he said. “At some point, you have to have to create something real, and that’s what manufacturing is all about.”
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