Summary
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In 2008Q4, the profit margin of Canadian manufacturers held steady while that of their U.S. counterparts crumbled. The trend observed since 2003, namely, a slimmer margin in Canada than in the United States, has reversed.
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The loonie’s 14% depreciation relative to the greenback, a record quarterly movement, probably accounts for the gist of the turnaround.
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Two major arguments support this view. First, manufacturing prices have declined less sharply in Canada; this would not have been the case without the exchange rate effect. Second, the maintenance of the profit margin in Canada, despite the drop in that of the auto and parts sector, derives from an improvement in the profit margin observed in nearly all the other manufacturing industries.
