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Checking our economic health

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Two widely used indicators of overall economic health are productivity and capacity utilization.

Productivity measures help to indicate how efficiently an economy is producing goods and services. Greater productivity arises from an increase in the rate of production, from a decrease in how much it costs to produce a good or service, or from a combination of the two. Any savings might be passed on to workers in the form of wage increases or transferred to consumers in the form of lower prices.

Companies can improve productivity in a number of ways. For example, increased labour productivity-a measure of the amount of gross domestic product a worker generates per hour-can result from having better-skilled workers, introducing technologies that speed up production, or improving how the production process is managed.

Though labour productivity growth in Canada has dropped from its 2.8% annual advance from 1997 to 2000, it still increased 1.5% annually from 2000 to 2003. Much of Canada's productivity gains during this period came from service industries such as wholesale trade, transportation and warehousing, and information and financial services.

A strong economy is one working close to its full potential. Measuring capacity utilization-an industry's actual output compared with its estimated potential output-helps to indicate how close our factories are being used to full capacity.

By the end of 2004, Canadian industry was operating at 86.3% of capacity-just 1.3 percentage points below the record high of 87.6% achieved in 1988. Several manufacturing industries posted annual average rates higher than 90%, including the wood product, primary metal and paper manufacturing industries. Mining, forestry, and petroleum and coal production also posted rates above 90%.