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Due to the banking sector, third quarter corporate profits up: Statistics Canada

Canadian business balance sheets are in for 2019’s third quarter and most of the news is bleak.
Jason Unrau Montreal, QC

As Mona Fortier struggled last week to define her new role as Minister of Middle Class Prosperity and what exactly she would be presiding over, Canadian business balance sheets are in for 2019’s third quarter, and apart from the banking sector they are dreary.

According to Statistics Canada, Corporate operating profits edged up July through August on the backs of the financial services’ $729 million profit increase (+2.2%), offsetting losses of $341 million in the goods and services sector.

Overall, Canadian corporations’ operating profits rang in at $108.6 billion or 0.4 percent more than 2019’s second quarter of $107.1 billion.

Quarterly operating profits, ending Q3 2019: Statistics Canada

Petroleum and coal were the biggest losers by percentage, down 17 percent or $418 million due to lower prices and the summer season while manfacturing took a collective $896 million hit to bottom lines, “declining in 10 of 13 manufacturing industries.”

The pulp, paper and lumber industries saw operating profits drop for a fifth consecutive quarter; down to just $255 million from $605 million in the second quarter (April, May, June).

Industry share ending Q3, 2019; manufacturing, wholesale, and retail: Statistics Canada

Business professor Ian Lee who teaches at Carleton’s Sprott School of Business, says capital flight offshore, or south of the 49th to catch the economic wave of President Donald Trump’s deregulation and tax cuts along with ongoing trade disputes with China are likely factors.

“Jack Mintz has been talking about capital flight and this is not new. We’re experiencing net outflows of investment in Canada going on several years now,” said Lee. “And the reason it’s so important is that’s a harbinger of future profits.”

Since 2012, Mintz–senior fellow at Calgary University’s School of Public Policy–has been tracking capital flight, or the difference between foreign investments (FDIs) coming into Canada, and Canadian dollars being invested offshore. With the exception of 2013, more investment money flows out of Canada than in, a $20 billion differential in 2018.

“So that could contribute to a decline in profits because you’re not reinvesting your capital base, modernizing it.

StatCan noted that during Q3 2019, declines in machinery and equipment supplies lead the wholesale and retail trade operating drops as Canadian firms purchased fewer farm, construction, mining and forestry machines and other industrial equipment.

Lee said huge corporate moves like that of iconic Canadian petroleum company EnCana, who announced last month it was relocating its Calgary HQ Denver and rebranding itself, are buoyed largely by Trump’s fiscal policies.

“I have to say this carefully because it sounds like I’m supporting Trump and I’m not. But if we separate out Trump the man, from Trump’s policies. his policies have had a significant effect in the U.S,” said Lee.

“I mean he’s cut back corporate taxes, of course he’s produced huge deficits, but it has been a great time to be a corporate company in America right now. Happy days are here again, it’s make money time.”

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