April 9, 2008
Economy at a Glance - April 10, 2008
Latest capacity utilization rate at lowest level in 10 years
According to recently released data by Statistics Canada, total industry in Canada operated at a capacity utilization rate of only 81.8% in fourth-quarter 2007. This was the lowest utilization rate in ten years. The major reason for the weakness was a manufacturing sector that was shackled by the weight of a too-highly-valued Canadian dollar.
The highest utilization rate for total industry in Canada in this decade was 87.1% achieved in the fourth quarter of 2000, just before the downturn brought on by the dot.com collapse. (By the way, total industry in the U.S. operated at 80.9% of capacity in February 2008. The Federal Reserve in the U.S. calculates numbers on a monthly basis, whereas Statcan only makes the numbers available on a quarterly basis in Canada.)
Among major sub-sectors, the utilization rate in oil and gas extraction dropped to 80.2% in the latest quarter. The huge investments in the Alberta Tar Sands have raised capacity. The electric power utilization rate is second highest among all sectors, at 88.3%. Winter started early in many parts of the country. However, this is also a warning that mega expansion plans need to be initiated fairly quickly if blackouts are to be avoided long term. New power generation has a long lead time between planning and “juice”.
Construction, thanks to continuing strong housing markets and a pickup in non-residential building work, is operating above 85% of capacity. Forestry and logging (79.6%) is hurting due to reduced sales brought on by Canadian dollar strength and the collapse in U.S. housing markets. However, the biggest problem was a manufacturing sector (80.5%) that barely registered a utilization rate above 80%.
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.
