July 2, 2008
Economy at a Glance - July 3, 2008
Add utilization rates to the list of negative indicators
Statistics Canada has just released capacity utilization rates for first-quarter 2008 for Canadian industry. The news is not good and adds to the list of indicators suggesting a marked slowdown in the overall economy.
The current slowdown/recession in Canada is being brought to you by weak U.S. demand for homes, cars and a host of other consumer and business goods (with serious implications for many products made in Canada), plus the climb in value of the loonie to parity with the U.S. dollar. The front line battle is being waged over exports and imports and Canadian manufacturers have been giving up valuable ground.
The capacity utilization rate of an industry is the actual level of production versus the full-potential level. It can rise or fall depending on the production level and/or additions to or subtractions from capacity. The most recent period has not been one of huge additions to capacity. Owners have been holding back on investments due to worries about the effects on their business from the rise in value of the Canadian dollar. Therefore, recent declines in the utilization rate are mainly due to production cutbacks.
Total Canadian industry operated at 79.8% of its capacity in this year’s first quarter. This was its lowest utilization rate in fifteen years. It was a decline of 2.0 percentage points from the previous quarter. Furthermore, it was 7.3 percentage points below the most recent peak of 87.1% in the fourth quarter of 2000. Total manufacturing capacity dropped back to 77.2% in the latest quarter, the first time it has been below 80.0% since 2001.
For more articles by Alex Carrick on the Canadian and U.S. economies, visit his blog and Market Insights.
An industry’s capacity utilization rate is the ratio of its actual output to its estimated potential output. Industry classifications are as according to NAICS (North American Industry Classification System). Above 85% capacity utilization, firms in an industry look seriously at expanding.
Data source: Statistics Canada/Chart: Reed Construction Data - CanaData.
