Canadian Corporate Profitability Growth Expected to Slow in Second Half of 2010

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OTTAWA — Restaurant companies expecting robust profitability growth through the second half of 2010, might want to lower their expectations a tad.
A new study by the Ottawa-based Conference Board of Canada is projecting that corporate profitability growth will be “moderate” in the second half of this year. This news comes on the heels of a strong post-recession rebound for many industries in the country.
The Leading Indicator of Industry Profitability, which is part of the Conference Board’s Industrial Economic Trends service, is designed to predict future movements in corporate profitability.
A leading indicator is created for the economy as a whole, as well as for 49 sectors within the economy — including food and beverage stores, service and manufacturing — covering most of the private business activity that takes place in Canada. External factors such as the fiscal problems in the eurozone or the state of the U.S. housing market are embedded into the analysis.
“Corporate profitability growth is now stabilizing following a sharp decline during the recession and a strong recovery coming out of the downturn,” said Michael Burt, Associate Director, Industrial Economic Trends. “After falling by 37 per cent between the second half of 2008 and the first half of 2009, profits had increased by 28 per cent by the end of last year.”
Burt added that because “profitability is approaching more normal levels for many industries, the indicator suggests there will be a significant slowdown in the rate of growth, reflecting the transition to a period of weak or no profit growth.”
Growth in the profitability leading indicator for all industries has been decelerating over the past few months, and the index actually decreased by 0.4 per cent in April, which is its first outright decline since March 2009. The rapid rise in the corporate prime interest rate and the decline of raw materials prices, when adjusted for seasonality, were the major factors explaining the reversal.
There are some positive indicators, as well, including improving labour markets and stock market growth, which should spur increases in profitability in the second half of the year. Meanwhile, the strength of the Canadian dollar can either help of hinder an industry.
To read or purchase the entire report, click here.
http://www.conferenceboard.ca/documents.aspx?did=3591.
OTTAWA — Restaurant companies expecting robust profitability growth through the second half of 2010, might want to lower their expectations a tad.

A new study by the Ottawa-based Conference Board of Canada is projecting that corporate profitability growth will be “moderate” in the second half of this year. This news comes on the heels of a strong post-recession rebound for many industries in the country.

The Leading Indicator of Industry Profitability, which is part of the Conference Board’s Industrial Economic Trends service, is designed to predict future movements in corporate profitability.

A leading indicator is created for the economy as a whole, as well as for 49 sectors within the economy — including food and beverage stores, service and manufacturing — covering most of the private business activity that takes place in Canada. External factors such as the fiscal problems in the eurozone or the state of the U.S. housing market are embedded into the analysis.

“Corporate profitability growth is now stabilizing following a sharp decline during the recession and a strong recovery coming out of the downturn,” said Michael Burt, Associate Director, Industrial Economic Trends. “After falling by 37 per cent between the second half of 2008 and the first half of 2009, profits had increased by 28 per cent by the end of last year.”

Burt added that because “profitability is approaching more normal levels for many industries, the indicator suggests there will be a significant slowdown in the rate of growth, reflecting the transition to a period of weak or no profit growth.”

Growth in the profitability leading indicator for all industries has been decelerating over the past few months, and the index actually decreased by 0.4 per cent in April, which is its first outright decline since March 2009. The rapid rise in the corporate prime interest rate and the decline of raw materials prices, when adjusted for seasonality, were the major factors explaining the reversal.

There are some positive indicators, as well, including improving labour markets and stock market growth, which should spur increases in profitability in the second half of the year. Meanwhile, the strength of the Canadian dollar can either help of hinder an industry.

To read or purchase the entire report, click here.

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