Spurred by Export Sector, Canada's Economy Thrives

But some analysts complain that demand in domestic market is low

CANADA'S economy is booming - finally.

After the seemingly interminable recession of the early 1990s, Canadian economists such as Robert Fairholm are ecstatic over the 6.4 percent annualized real growth in Canada's output of goods and services that the federal government announced last week.

``Everything is coming up roses,'' exults Mr. Fairholm, chief Canadian economist with DRI/McGraw-Hill in Toronto.

Combined with a 4.4 percent performance in the first quarter, Canada's six-month growth rate is a powerful 5.4 percent. Even if demand eases in coming months, 1994 will still be a good year, Fairholm says.

In western Canada, demand for natural gas is prompting new drilling in Alberta and British Columbia. In Alberta, for example, the industry is expected to drill 12,000 wells this year, as compared with 9,000 last year. (Banff National Park under siege from development, Page 7.)

In Ontario and Quebec, fast-rising United States demand for Canadian exports is spurring manufacturers to invest in new plants and equipment.

Canadian business investment in plants and equipment rose 18 percent on an annualized basis in the second quarter. This heavy spending on retooling factories has powered the economy, economists say. Nowhere is the surge more evident than in automotive assembly and parts.

``We've been doing really well,'' says Paul Johnson, president of Accuride Canada Inc., the world's largest maker of steel truck wheels. As truck sales have grown, Accuride, whose main Ontario plant employs 950, has had to move fast to keep up.

``We've been operating seven days a week in a plant designed for five days a week since spring 1993,'' Mr. Johnson says. ``We've invested heavily in automation over the past four years. Still, we've had to bring on new people, and we're in the process of hiring 80 more.''

The good news is that the upsurge in manufacturing has created about 30,000 new manufacturing jobs, most of them full-time. When all business sectors are included, 245,000 full-time jobs have been created across Canada since January, a 2.4 percent increase.

But there is a dark side to this buoyant economic news. Some economists say Canada's recovery is an uneven, two-tiered affair. While exporters serving the North American market are hot, many retailers and manufacturers who serve primarily the domestic market are seeing lackluster sales. Canadian consumer demand rose just 2.8 percent annualized in the second quarter.

The owner of Toronto's oldest toy store says he isn't impressed with the recovery. ``I don't see it yet,'' says Harry Bricks of Toy Town. ``The word is that retailers are very cautious about what they're buying.''

Things are somewhat better at Sporting Life, a top Toronto sporting-goods store. ``In the last year, we've started feeling more comfortable with the level of sales,'' says store manager Jerry Rynda. The boom in rollerblading has brought sales growth, he says, while other product lines have been flat.

Jayson Myers, chief economist for the Canadian Manufacturer's Association, says the government's big numbers reflect a booming export sector that masks a weak ``domestic'' economy. ``If you're only producing for or selling into the Canadian market, you're still in pretty bad shape,'' he says. ``The domestic market for food, furniture, clothing is still shrinking.

``What's happening in Canada overall is that manufacturing is being driven as a part of an integrated overall North American market,'' Mr. Myers says. ``If exports were flat, then Canada would be in recession right now.'' Even though 30,000 manufacturing jobs have been added since January, ``we still have 300,000 fewer jobs than we had prior to the 1989 recession.''

Canadian manufacturers are starting to catch up to their US counterparts in productivity gains, with a 20 percent improvement in the last two years alone. Average sales produced per manufacturing employee have risen from $52,000 (Canadian; US$37,440) to $62,000, Myers says. While Canadian firms are getting ``lean and mean'' by investing in labor-saving equipment in plants, most are not building new factories, Myers says.

Even so, he says, Canadian firms are investing heavily in Mexico and the US. He points to Labatt Brewing Company's recent deal with a Mexican company and Canadian publisher Hollinger Inc.'s recent purchase of the Chicago Sun-Times.

``Because it's a branch in a larger North American market, Canada hasn't been able to retain or attract the level of investment we would want to see to give an additional boost to manufacturing capacity,'' Myers says. ``Future jobs are not in the existing capacity but in new production - and you're not seeing that being built here.''

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