CBOC’s Leading Indicator of Industry Profitability Index Falls Again

OTTAWA — The Conference Board of Canada’s Leading Indicator of Industry Profitability Index fell for the fourth straight month, which suggests that the near-term outlook for Canadian corporate profitability is weak. The index is being dragged down by a swoon in manufacturing industries, a cooling domestic housing market, and weakness in some of the retail and services industries.

The domestic housing market has weakened considerably over the past year, a direct result of the tighter mortgage rules and lending guidelines introduced in the summer of 2012. The furniture and appliance stores’ profitability index is on a seven-month slide, and the building material dealers segment has now dropped in each of the past five months. Food and beverage stores are another retail segment with a negative profit outlook due, in this case, primarily to an increasingly competitive marketplace.

Many segments of the information services sector are also facing negative profitability outlooks as a result of increased competition. For telecommunications companies, consumers are “cutting the cord” in increasing numbers, as they opt for online streaming and over-the-air signals as an alternative to cable or satellite television. The broadcasting segment, in particular, has been affected by Canadians opting to cut their cable packages in favour of online content.

On the other side are a number of industries with more positive profitability outlooks. The mining industry’s profitability outlook has improved, thanks to the recent rally in commodity prices, especially for copper, steel, and gold.  Moreover, gold is often viewed as a safe haven during times of uncertainty. 

Rising geopolitical tensions in Syria have also fuelled the rise in oil prices, as worries over conflicts in the Middle East always increase supply concerns. Also, the profitability index of the banking industry has been trending up for the past seven months.

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