The Canadian economy advanced by 0.2% in January due to a rebound in retailing activity and renewed vigour in manufacturing. The economy also grew by 0.2% in December 2004. Shoppers did not wait long after Christmas to use their gift cards, prodded by favourable weather in most parts of the country. Manufacturers boosted their output in January after a lacklustre fourth quarter as demand for machinery and equipment continued unabated.

Industrial production (the output of factories, mines and utilities) rose by 0.3% restrained by a 1.3% decrease in the output of utilities brought about by the relatively mild January weather. Output of the mining, oil and gas sector increased by 0.1%, as oil and gas extraction and exploration were both reduced. Manufacturing activity moved ahead by 0.6% due to increased demand for aerospace products and for heavy-duty trucks, as well as the continued demand for machinery. In the United States, the Index of Industrial Production edged up 0.1% with manufacturing gains overshadowed by decreased output of utilities, while the output of mines was flat.

Shoppers hurry to cash in their gift cards

Retailing activity rebounded by 2.3% in January 2005 after dropping 1.3% in December 2004. Much of this action was attributed to the increasing popularity of gift cards, particularly in department, general merchandise, and furniture stores. Beer, wine and liquor stores partly made up for the lost ground in the previous three months, and were also an important factor in boosting retailing activity. Supermarkets and new car dealers further contributed to the January increase.

Wholesaling activity decreased by 0.4% pulled down mainly by motor vehicles following the December 2004 surge. Car manufacturers moved many vehicles onto dealers' lots in December in anticipation of increased sales. New car dealers' sales increased in January and preliminary reports indicate that unit sales of new motor vehicles surged in February 2005. Excluding motor vehicles, wholesaling activity increased by 0.4% in January 2005. Wholesalers of machinery and electronic equipment, including computers, of personal and household goods, and of lumber and millwork were the main contributors to this growth.

Solid gains in manufacturing

Output in the manufacturing sector increased by 0.6% in January. Increases were widespread as 15 of the 21 major groups advanced. Aerospace products and parts, heavy-duty trucks, fabricated metal products, machinery, and food products manufacturers were responsible for much of the strength.

Output of manufacturers of aerospace products and parts increased by 6.8% as the demand for aircraft continued to rise in step with the gradual improvement in air travel internationally.

Experience with bottlenecks in transporting goods by rail and water across North America in 2004 fuelled demand for heavy-duty trucks (+15%) in January 2005. Motor vehicle manufacturing however was flat due to a decrease in production of light motor vehicles. The production of motor vehicle parts increased by 1.0%.

Production of fabricated metal products (+1.5%) and of machinery (+1.4%) were both up in most categories. Paper products manufacturing was down 1.5% because of recent increases in prices for pulp and paper and reduced demand for newsprint. Smelting and refining of non-ferrous metal excluding aluminum was down 5.7% mainly due to reduced uranium production. The manufacturing of food products increased by 0.8% due to higher output of dairy, sugar and confectionery products, as well as of fruit and vegetable preserving.

Mixed performance in the mining, oil and gas sector

The mining, oil and gas extraction sector increased by 0.1% in January. Oil and gas extraction retreated by 0.1% because of continued production difficulties in the Alberta tar sands. The East Coast however recovered from the oil spill at the Terra Nova platform. Output of metal mines decreased 0.9% because of reduced production of copper, nickel, and uranium. The production of potash declined 11% after the December 2004 jump spurred by demand from China. The output of diamonds regained some of the ground lost after two months of sharply reduced production. Support activities for mining, oil and gas extraction (mostly drilling and rigging) stepped back by 4.0% after a 12% increase in the last quarter of 2004.

Construction activity declined

Output of the construction sector declined by 0.5% in January with all types of activity receding. Residential construction decreased by 0.8% as the building of single detached dwellings declined for a second month in a row. This decrease more than offset increases in the construction of apartments and row houses. New housing starts in urban areas saw double-digit decreases in every region. The value of existing homes sold in January increased however, raising the activity of real estate agents and brokers by 0.6%.

Non-residential construction declined by 1.1% as building of institutional and commercial structures decreased. The value of building permits for institutional and industrial structures was down significantly. For a second consecutive month however industrial building construction was up. Engineering, repairs and other construction activities slowed (-0.1%).

Other industries

Accommodation and food services industries declined 0.5% as the number of foreign travellers to Canada was stable and the number of Canadians travelling overseas increased. Pipeline transportation decreased by 3.3% due to lower demand for petroleum and natural gas in both Canada and the United States. Output of telecommunication industries climbed a further 0.9% partly due to an increase in long-distance calls. Output of the finance and insurance industries (+0.5%) was shored up by increased sales of financial products related to retirement funds.