Profitability outlook for Canadian business stuck in neutral

The profitability outlook for Canadian businesses is stuck in neutral because of the recession in Europe and slowing growth in China, according to a report from the Conference Board of Canada.

The non-profit research agency’s leading indicator of industry profitability index was unchanged for a fourth straight month, due to the slow growth of the Canadian economy.

With many European economies stalled, Canadian exports to Europe have been hurt.

But China, which has driven the growth in sales of Canadian commodities, including copper, other metals and oil, is a bigger concern. Its exports slumped in July because of slowing global demand and the Chinese economy is expected to cool its rapid rate of expansion.

There could be more bad news ahead for Canadian business, as the impact of flooding in Alberta and a two-week strike by construction workers in Quebec is fully felt.

The Conference Board says the outlook is particularly negative for primary and fabricated metal products and lumber.

The profitability index has fallen for nine of the the past 12 months in the metals industry, due mainly to slumping demand from the manufacturing and construction sectors.

Poor weather in the U.S. and the expected soft landing in Canadian housing demand have hurt lumber prices and contributed to a lowering of expectations for the industry. Lumber prices in North America have been tumbling for the past two months.

However, there is a positive outlook in other sectors, including arts and entertainment, food services and accommodation industries. Average weekly earnings have been increasing in these sectors since January.