Gross domestic product by industry

Gross domestic product by industry note to readers

December 2006

The economy gained momentum throughout the fourth quarter closing the year with 0.4% growth in December, compared to 0.3% and 0.1% gains in November and October, respectively. Both the service (+0.5%) and the goods producing industries (+0.1%) increased. Manufacturing, wholesale and retail trade posted the strongest gains. Construction, financial services, and mining, excluding oil and natural gas, also advanced. These gains were partly offset by losses in the energy sector, and the agriculture and forestry industries.

Chart C.1 Economic activity accelerates in December

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Motor vehicle sales boost wholesale and retail activity

Wholesale trade climbed 1.2% due to robust sales of motor vehicle, largely attributable to the launch of new car models. Sales of pharmaceutical and metal products also helped push wholesale along. However, sales of machinery and equipment declined.

December was a pinnacle month for retail activity which jumped 2.1%, a monthly increase not seen since November 2001. Shoppers stormed into stores in December after shying away in October and November. New car dealers had a banner month with strong sales of passenger vehicles, trucks and vans. Significant gains were also realized by apparel and general merchandise retailers (which include department stores).

Chart C.2 Motor vehicles steer wholesale and retail activities

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The energy sector reaches a new low

The energy sector fell 1.8% in December, reaching its lowest level of output for 2006. This setback was due to the continued decline in natural gas extraction, and was partly offset by a slight gain in oil extraction. Oil and gas exploration also loss significant ground (-4.7%). Utilities recorded a modest decline (-0.4%), despite the warm weather in December in Ontario and Quebec where demand fell sharply.

The output of the mining sector excluding oil and gas advanced 0.6%. The gains realized by the non-metallic mineral mines were largely offset by the losses experienced by metal ore mines.

Industrial production (the output of mines, utilities and factories) was essentially unchanged in December. The drop in mining and the decline in utilities outweighed the gains made by manufacturers. In comparison, industrial production in the United States increased 0.5% in December, due to gains in manufacturing and mining. As in Canada, output of utilities declined in the United States.

Chart C.3 Main industrial sectors' contribution to total growth - December 2006

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Manufacturing moves ahead for a second consecutive month

For the second month in a row, manufacturing strengthened, growing 0.9%. The increase was in the production of durable goods, up 2.0%. Conversely, non-durable goods manufacturing fell back 0.8%. Of the 21 major manufacturing groups, 13 increased, accounting for 64% of the total manufacturing value added.

The output of motor vehicles jumped 6.7% in December as the production of new models reached a more normal level of production. This gain also helped related industries, such as the manufacturing of motor vehicle parts. Manufacturing of heavy-duty trucks plunged in December as the demand for 2007 models remains weak.

The pharmaceutical and medicine industry recorded a significant decline (-10%) as the production of vaccines that fuelled the November gain dwindled. Furthermore, the manufacturing of tobacco products tumbled (-14%). This decline brought the industry’s output to almost half of what it was on average for the three previous years (2003-2005).

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Construction and real estate sectors post gains

The construction sector rose 0.9% in December. There was a significant increase in engineering and repair work, while the unusually warm December weather helped residential repair and alteration activities. Residential construction edged up 0.2%, despite a reduction in single-family homes and apartments starts. Non-residential building construction showed a modest increase of 0.3%, its first in eight months.

Activity in the home resale market rose in December (+3.2%). This increase represented the highest gain for a single month for all of 2006. The Ontario and Quebec markets fuelled this climb.

Other industries

After a dismal performance in November due to the weather, a rebound in the accommodation industry in British Columbia contributed to the healthy growth (+1.1%) of the industry in December. Similar gains were realized in the restaurant and air transportation industries.

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Fourth quarter 2006

The pace of economic activity eased in the fourth quarter 2006. After retreating on the last month of the third quarter, economic activity accelerated in each month of the fourth quarter. The rise in the production of services (+0.7%) contrasted with the decline (-0.4%) observed in goods-producing industries. The growth came mainly from the construction and financial sectors and from the tourism-related industries. Lower output in manufacturing, wholesale trade and the energy sector explains most of the slowdown in economic growth.

The decline in the energy sector (-2.3%) was largely due to the reductions in natural gas extraction and oil and natural gas exploration activities. The level of exploration activities peaked early in the third quarter of 2006 and has registered five consecutive monthly declines since then.

Wholesale trade retreated 1.2% in the fourth quarter largely due to a decline in sales of motor vehicles and parts. Food products and office and professional equipment also contributed to the decline. Conversely, household and personal products and building supplies posted appreciable gains. However, retail trade edged up 0.4%, a performance that was well below that recorded in the previous three quarters of 2006. New motor vehicle sales were the main source of growth in this sector.

Manufacturing activities fell (-0.6%) for a fourth straight quarter. The manufacturing sector as a whole finished the year on a positive note however, with a strong gain in the last two months. Of the 21 major groups, 13 were down, accounting for 61% of total manufacturing value added. The production of both non-durable goods (-0.9%) and durables (-0.5%) declined.

Industrial production (the output of utilities, mines and factories) retreated by 1.0% as a result of the declines recorded in all three sectors. Industrial production in the United States fell 0.2%. The losses recorded by manufacturers were only partially offset by the gains in the mining and utilities sectors.

On the positive side, the finance, insurance and real estate sector advanced 1.1% in the fourth quarter on the strength of banking, brokerage and insurance activities. Stockbrokers’ activity grew substantially (+3.5%) due to vigorous sales of mutual funds. For the first time in 2006, real estate agents and brokers posted a quarterly gain (+1.5%), reflecting the state of the home resale market during the same period.

Construction activities grew 1.3% in the fourth quarter. Construction activities have increased every quarter since the third quarter of 2000. All the strength was again in engineering and repair works, as both residential and non-residential construction registered a third consecutive quarterly decline.

Industries related to tourism, such as arts and entertainment, hotels, restaurants and air travel showed robust growth for the fourth quarter, in light of the increase in domestic travel.

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Year-end review

Canadian economic activity, as measured by value added by industry, increased 2.7% in 2006, a slightly lower pace than that recorded in 2005 (+2.8%). The year ended on a positive note however as November and December recorded the largest back-to-back monthly increases. The annual slowdown affected mostly the goods-producing sector (+0.8%) as growth in service industries accelerated (+3.6%) from 2005. The 6.9% gain in the value of the Canadian dollar against the U.S. currency impeded growth in export-oriented industries, such as non-durable manufacturing, while the increase in the price of crude oil—reaching a summit not seen since the 1970s—forced consumers both in Canada and the United States to adjust their preferences in the type of motor vehicles they were buying.

Construction, retail and wholesale trade as well as finance and insurance were the main sectors contributing to growth in 2006. Manufacturing and forestry and logging were hard hit. The energy sector continued to expand but at a much slower pace than in the last four years.

Output in the manufacturing sector decreased 1.2% in 2006, dragged down principally by a 3.0% decreased in the production of non-durable goods. Of the 21 major manufacturing groups, 13 decreased, accounting for 54% of total manufacturing value added. Following ten consecutive months of decline or minimal growth, the year however ended on a positive note for the manufacturing sector as a whole, with strong increases in November and December. The continued strength in the value of the Canadian dollar combined with higher labour costs affected mostly export-sensitive manufacturers, such as the textile and clothing industries (-8.8%), and pushed some to relocate their operations, as it happened in the tobacco industry (-33%) and the paper industries (-6.6%).

The increase in the value of crude oil on international markets affected plastic products manufacturers (-6.0%) as well as motor vehicle and parts manufacturers (-7.4%) as they had to adjust to changing consumer demand for more fuel-efficient cars.

On the positive side manufacturers of construction-related products and of machinery and equipment benefited from the increased activity in plant and equipment investment. Manufacturing of architectural and structural products increased 4.4%, machinery increased 3.8%, while aerospace and other transportation equipment both registered a double-digit increase.

The energy sector advanced 0.7% on the strength of oil and gas extraction (+2.9%). Most of this increase however was due to higher levels of non-conventional oil extraction, as natural gas inventories were at unusually high levels throughout the year in both Canada and the United States. Warmer than usual weather lowered the demand for natural gas and as a consequence pushed down its price as well as extraction. Weather was also a factor in the decreased production of electricity (-1.8%). Mining excluding oil and gas declined 1.1%. Some of the largest mining industries experienced production difficulties (such as strikes and accidents) during the year while potash output was curtailed during contract negotiations with buyers in China.

Industrial production declined 0.5% in 2006, the first time since 2001, as the increase in the mining, oil and gas sector was not sufficient to offset the lower production of manufacturers and utilities. In the United States, industrial production rose 4.1% as manufacturing output increased 5.0%, mining 2.6% and utilities 0.7%.

The construction sector increased 7.3% pushed by intense repair and engineering construction activities (+11%), principally attributable to investments in oil sands projects. Both residential and non-residential construction advanced, reaching a peak in early 2006. Residential construction activities increased 3.3% due to alterations and improvements work and apartment construction while other types of dwellings decreased. Non-residential construction rose 4.7% on the strength of commercial and public buildings while industrial buildings declined. The home resale market however declined in 2006, lowering the activities of real estate agents and brokers by 1.6%.

For a second year in a row, wholesalers were a major source of growth in the economy. Wholesaling activities increased 6.8% led by sales of motor vehicles, electronic equipment, machinery, and household and personal products. Retail trade also expanded significantly in 2006 (+5.2%). Consumers spent more on used cars, home furnishings and electronic products, as well as at general merchandise stores (which include department stores) and, to a lesser degree, on new cars.

Tourism-related industries also fared very well. Air transportation increased 9.2% a third year in a row of near double-digit increases. Performing arts and spectator sports increased 5.4% while accommodation services increased 5.8% and food and beverage services increased 2.6%. The increased demand for these services was domestically-based as international travellers reduced their number of visits to Canada.

The finance and insurance sector rose 5.1% in 2006. Banking activities increased 5.8% while securities trading gained 8.9% due to the rise in the volume of transactions on the Canadian stock exchanges. The insurance sector advanced 1.8%.

The public sector, comprising education, health services, and public administration, rose 2.1%. The 2006 Census was one factor contributing to the increased activities in public administration.

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Statistical tables

• Table C.1 Real gross domestic product by industry, at basic prices, monthly
• Table C.2 Real gross domestic product by industry, at basic prices, quarterly and annually

Information on methods and data quality available in the Integrated Meta Data Base: 1301.