Manufacturing’s Decline A Bigger Problem Than Housing Bubble: BMO.

Heinz shuts down its plant in Leamington, Ont., laying off more than 700 and ending a 104-year-long presence in the town. Three weeks later, Kellogg’s shuts down its plant in London, Ont., erasing 500 jobs. Days after that, drugmaker Novartis announces its pharmaceutical plant in Mississauga will shut down, taking 300 jobs with it.

Add it all up, and what you have is the largest medium-term threat to Canada’s economy, BMO chief economist Doug Porter said in a client note this week.

Porter noted that Ontario has lost 4 per cent of all its manufacturing jobs in the past year — something he understatedly describes as “not good.” Canada overall lost 2.5 per cent of all its manufacturing jobs this year, the Wall Street Journal notes — and that’s despite a recent rise in manufacturing output.

There are now more jobs in health care in Ontario than there are in manufacturing; as recently as 2000, there were twice as many factory jobs as health care jobs.

The decline of factory jobs is taking place even as manufacturing around the world, particularly auto manufacturing, is experiencing a boom — one that appears to bepassing Canada over.

“It would seem to us that this is a much bigger issue for the medium-term Canadian outlook than the more hyped housing bubble/household debt concern,” Porter wrote.

The Bank of Canada appears to disagree, once again reiterating this week that it sees high house prices and record high consumer debt levels as the dominant domestic risk to the economy.

But maybe those two risks aren’t entirely unconnected. As manufacturing employment wanes (even with manufacturing output growing), the real estate boom has picked up much of the slack, and construction employment is at or near record highs in Canada today.

But few market observers, even those optimistic about the future of the housing market, expect this juggernaut to continue. That’s why economists are constantly looking to external demand (i.e. exports) to pick up the economic slack from a housing boom that’s expected to level off.

On that front, there is some hope for good news, BMO economist Robert Kavcic says.

“With the high-profile job cuts in Ontario’s manufacturing sector piling up, there might be some reprieve coming from the weaker loonie and stronger expected U.S. growth,” he writes.

“But keep in mind that a weaker currency won’t help overnight — the impact tends to filter through over the course of at least two years.”

So here’s hoping the housing construction boom keeps up for a few more years, or Canada could get a nasty surprise in future unemployment reports.