The September 11 terrorist attacks and the resulting global economic downturn have taken a large toll on Canadian manufacturers, according to the latest Business Conditions Survey from Statistics Canada.

It shows that an increasing number of firms intend to step up the pace of production cutbacks and layoffs in coming months. The survey of almost 4,000 companies was undertaken in the first two weeks of October and, therefore, captures the full adverse impact of the terrorist strikes.

One-third of manufacturers plan to reduce output in the last three months of the year, double the number reported in the previous survey. Only 8% intend to increase production, the lowest number since the survey began in 1981.

One-quarter of firms plan to reduce their payrolls over the next three months, up from 17% in July. Combine this with the news that the help-wanted index plunged 5.4% in October, and Bank of Montreal economists suggest that Canada’s unemployment rate could jump from 7.2% in September to 7.6% in October.

The only good news, BMO says, is that 80% of manufacturers are satisfied with their current level of finished goods inventories.

“Today’s report is consistent with our view that Canadian GDP likely will contract at an annual rate of 1.5% in the fourth quarter after shrinking an estimated 1% in the third quarter. The report weighs in favour of a 50-basis points rate cut from the Bank of Canada at the November 27 fixed announcement date,” says BMO.