July 4, 2008
Economy at a Glance - July 7, 2008
Largest declines in operating rates were all tied to export markets
The largest quarter-to-quarter (Q1 08 vs Q4 07) declines in capacity utilization rates among industrial sectors in Canada were all tied to export markets. Non-metallic mineral products (glass and cement) fell 6.7 percentage points and wood products dropped 6.0 percentage points. Both of these were hurt by weak U.S. housing markets.
Transportation equipment fell back by 6.0 percentage points and plastic products (e.g., parts for vehicles) by 4.9 percentage points. Also figure in rubber products (e.g., tires), down by 3.6 percentage points, and one gets a sense of how much the overall decline in U.S. demand for autos has hurt Canadian producers.
As for absolute levels of capacity utilization rates, only one industry aggregate and three sub-sectors are operating at or above 85.0%, which is usually taken to be the benchmark figure for firms in an industry to seriously consider expanding. Electric power generation operated at 86.8% of capacity in the first quarter, paper manufacturing was at 85.3%, primary metals were at 91.8% and computer equipment was at 84.8%.
Wallowing in excess capacity were eight industries operating below 75% of capacity textile mills (63.7%), wood products (64.8%), clothing (65.2%), plastics (66.2%), beverages (68.6%), electrical equipment and appliances (72.0%), non-metallic minerals (72.2%) and furniture (74.2%).
The generally low operating rates, the implications for weak profit performance, the declines in goods export sales and the continuing projection of loonie-greenback parity all leave one with little enthusiasm for investment and construction prospects from the manufacturing sector over the year ahead in Canada.
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.
