Current economic indicators table

Key economic indicators report

 

 

GDP rebounds back into the plus column

Latest available: April 2008
Release date: June 30, 2008

Real GDP rose a solid 0.4% in April following two months of decline, with output down 0.2% in March and 0.3% in February. Output in both goods-producing and service-producing industries was up 0.4%. The strength in goods-producing industries was led by a 1.9% jump in manufacturing activity as a result of a solid gain in auto production as producers found ways to circumvent a strike by a major U.S. auto parts supplier. This strike was eventually settled late in May.

Manufacturing strength was partially offset by declines in mining and oil and gas extraction (down 1.5%) and construction (down 0.7%). The weakness in construction was relatively broadly based, although recent increases in non-residential building permits will provide some offset to further weakening in residential construction activity, which augurs well for growth in this component going forward.

Strength in service-producing industries was led by gains in wholesale trade (up 2.1%) and retail trade (up 0.6%). Less anticipated was a 1.2% surge in the accommodation and food services component, which reflected increased tourism, particularly from overseas visitors.

The solid rise in April GDP reinforces the view that the 0.3% annualized contraction in first-quarter GDP reflected largely transitory negative factors, including strike activity, retooling in the auto sector and inclement weather, which augurs well for a postive second-quarter growth rate.

However, the pace of growth in the second quarter, although positive, is not likely to be particularly robust because of some less transitory restraining factors, such as the continuing weakness in the U.S. economy.

 

Capacity utilization rate sags

Latest available: April 2008
Release date: June 11, 2008

 

Canada capacity utilization rate fell to its lowest level in 15 years in the first quarter at 79.8%, even lower than market forecasts for an 80.8% print. Capacity usage decreased in all major industries in the first quarter except the oil and gas extraction sector. The manufacturing sector saw another decline in usage, with the rate falling to 77.2% from 80.3% in last year's fourth quarter, marking the first time that the rate has fallen below 80% since 2001.

Once again the special factors that plagued the auto sector in the first quarter played out in this report with the transportation equipment industry's capacity utilization rate falling to 77.2%, the lowest since 1994. The oil and gas sector saw its rate rise to 81.7% due to an increase in crude oil production with natural gas falling in the quarter.

The decline in the capacity utilization rate is in line with the economy having slipped into excess supply in the first quarter after a prolonged period when the economy was running at a faster-than-potential speed. The Bank of Canada highlighted in its June 10 statement that the shift into excess supply will likely keep the core inflation rate below the 2% target through 2009.

 

Survey of Public and Private Investment Intentions for 2008

Release date: February 27, 2008

 

Statistics Canada released today its survey of public and private investment intentions for 2008 and it paints a pretty healthy picture for business capital spending.  The survey is the most comprehensive reading of proposed investment (though only released annually) and shows an expected gain in nominal terms for fixed investment - both non-residential construction and machinery & equipment - of 6.8% this year as compared to an estimated gain of 4.7% last year.  This suggests a significant boost to real GDP growth from investment - especially given the fact that prices for imported machinery & equipment have been plummeting thanks to a stronger Canadian dollar.  RBC Economics is looking for business investment in machinery and equipment to add some 3/4% to real GDP growth this year.

 

The details of today's report shows a relatively broad-based increase in investment intentions, though the lion's share comes from natural resource-related activities, with pipeline building activities boosting transportation/warehousing figures by $C4.4bn - slightly more than one quarter of the aggregate expected gain of $C16bn in total, non-housing investment.  Other significant gains come in utilities ($C1.6bn), public administration ($C4.3bn) and mining, oil & gas extraction ($C2.3bn).  Even beleaguered manufacturing industries plan to boost capital spending by $C1.4bn or 7.6% from 2007 levels.

 

In terms of aggregate expenditures (rather than planned increased spending), the biggest investment comes in mining, oil & gas extraction ($C56bn of $C250bn) followed by public administration ($C33bn) pipeline-related warehousing/transportation ($C23bn).

 

Implications:  This is a quite comforting - if not overly surprising - report.  Statistics Canada's survey is very comprehensive (28000 businesses and enterprises) and relatively timely (taken from October through late January) and economists rely quite heavily on the figures in building business fixed investment forecasts.  The report suggests that our current forecast (7.9% real growth in machinery & equipment investment during 2008) is not overly optimistic and should continue to support the sharp split between (strong) domestic demand growth and (weak) net exports.