15-001-XIE
Gross Domestic Product by Industry
March 2002 |
GDP edged ahead 0.1% in March as the economic turnaround that started last October continued for the sixth consecutive month.
The consumers insatiable demand for housing was behind the strength in the economy in March. Decade-high consumer confidence levels propelled new house construction a further 4.9%. The strength in the housing sector led to further increased output in the construction feeder industries. Makers of asphalt products, glass and glass products, wood products, heating and ventilation equipment and electric lighting equipment all reported higher output in March. On the other hand, consumers pulled back on their purchases of other goods and services, resulting in a second consecutive monthly decline in retailing activity. Although most retailers reported lower sales in March, lower sales at automotive dealers were responsible for much of the weakness.
The manufacturing sector receded 0.8% in March, after reporting sizeable gains in the previous two months. The weakness in manufacturing was widespread, although close to one-third of the decline was attributable to the motor vehicle and assembly and parts fabrication industries. Producers of food, beverages, tobacco, fabricated metal products, iron and steel products, cement and concrete products all curtailed output. Sawmill output fell 1.8%, after two strong monthly advances as housing starts in the United States turned down in March. Producers of veneer, plywood and structural wood products boosted output a further 0.8%. The Information and Communications Technologies (ICT) manufacturing sector has fared well recently as output expanded for the fourth consecutive month in March. The manufacturing output of the ICT sector is still 42% below its peak reached in August 2000.
Housing market red hot
Residential construction surged ahead 4.9% in March, continuing a string of sizeable increases beginning last summer. Housing construction is now 17.5% higher than year-ago levels. The highest consumer confidence level in 14 years, encouraged by historically low interest rates and large employment gains, encouraged consumers to purchase new homes in record numbers. Concerns over higher interest rates in the near-term contributed to the already high levels of demand for housing. The rise in residential construction was due mainly to an increase in single-family dwellings as opposed to multiple-dwelling units. The strength was centred in Ontario and Western Canada.
Although the resale housing market backed off from the record levels set earlier in the year, the output in the real estate agent and brokerage industry is 25.4% higher than year-ago levels. This industry benefited from a low vacancy rate in the rental housing market that kept rent prices high, and from low mortgage rates. This made the cost of owning a home a more affordable option for renters. However, this intense demand for housing boosted the prices of existing housing; the price of a detached bungalow rose 8% in the first quarter. Furniture retailers and wholesalers also reported increased activity as homeowners furnished their new living spaces. Household appliance makers ramped up production 1.6% in March, attempting to meet the demand from new homeowners.
Retailing and production of cars down
Retailing activity declined 0.7% in March, after slipping 0.6% in February. Although most retailers reported lower sales in March, declining sales at automotive dealers were responsible for much of the weakness. Those retailers that raised output reported only marginally higher sales. New car dealers were unable to continue to sell new cars at the pace set during the fourth quarter of 2001, although sales remained 11.7% higher than they were in March 2001. The replenishment of new car dealers’ inventories caused new motor vehicle imports to increase over 20% in March. Wholesalers of motor vehicles benefited from this recent strength in new motor vehicle sales, increasing 1.4% in March. Motor vehicle manufacturers scaled back production 5.3% in March, after surging 9.9% in February. Manufacturers of motor vehicle parts also geared back production and output declined 0.7%.
Other industries
The public administration sector was an area of weakness in March. A strike by Ontario public service employees, that continued into May, reduced the output of provincial public administration by 4.2%. Meanwhile, the resolution of a strike by Alberta teachers resulted in a 0.9% gain in the education sector. The mining and oil and gas sector increased output 0.9% after a slight decline in February. Output levels for iron, nickel, lead, zinc and diamonds increased. Higher production of natural gas was offset by decreased drilling and rigging activity.
The arts and entertainment sector surged ahead 5.8% as the spectator sports industry recovered from a setback in February. The National Hockey League resumed a full schedule in March after being shutdown for a 10-day period during the Winter Olympics in February. Many of the travel-related industries weakened in the month; declines were reported for restaurants, hotels, travel agents and gambling industries. However, increases in the transportation sector occurred in the airline, rail, taxi and limousine and scenic and sightseeing industries. Much cooler weather in March had positive consequences for the utilities sector, which reported increased output of electricity and natural gas distribution.
First Quarter, 2002
The economy roared ahead in the first quarter as almost all areas of the economy posted significant gains. The manufacturing sector provided the single largest push. Optimistic consumers provided the impetus for growth this quarter as most industries raised output in response to increased household demand for almost everything from new houses to new fridges.
Manufacturing output expanded 2.5% in the first quarter, the first increase since the third quarter of 2000. The advance in manufacturing was widespread with much of the strength being reported by durable goods manufacturers. Strong North American car sales drove output of the transportation equipment sector. Motor vehicle production increased 2.6%, following two negative quarters. The computer and electronics industry boosted production for the first time following five consecutive quarterly declines. Chemical producers raised output significantly in the quarter as the pharmaceutical industry continued its upward trend. This climb in manufacturing production contributed to higher activity in electricity generation, natural gas distribution and rail transportation services. These increases were offset by reduced production of beverages, tobacco and paper products.
Residential construction rose 7.4% in the first quarter, the strongest quarterly growth since the 1980’s housing boom. Improved consumer confidence, encouraged by historically low interest rates and large employment gains, helped drive consumers to purchase new homes in record numbers. Housing construction was also given a boost in the first quarter by the unusually mild winter weather. The rise in residential construction was due mainly to an increase in single-family dwellings as opposed to multiple-housing units.
The recent strength in new home building had positive consequences for many of the industries in the manufacturing sector that supply new home construction. Producers of glass and glass products, cement and concrete, gypsum, architectural and structural metal, heating and ventilation equipment and coated paper products increased output in the first quarter. Producers of wood products raised output substantially – the result of a strong housing market both in Canada and in the United States.
The hot housing market also led to a 10.0% increase in the real estate agent and brokerage industry following a similar rise last quarter. Record-breaking sales of existing housing were responsible for the strength in this industry. Furniture retailers, wholesalers and manufacturers all boosted output levels in response to increased demand for furnishings to fill these new living spaces.
Strong consumer demand for goods and services led to a rise in the retailing sector of 2.3% in the first quarter. While almost all retailers reported gains in the first quarter, sales at new motor vehicle dealers were responsible for at least half of the growth. Sales of new motor vehicles were propelled in recent months by attractive incentive programs offered by the manufacturers. Motor vehicle and parts wholesaling surged 11.8% in the first quarter, accounting for much of the strength in the wholesale trade industry.
A strike by Alberta teachers pulled down the output of the education sector by 0.5% in the quarter. A strike by Ontario public service employees that continued into May reduced the output of provincial public administration 1.5% during the quarter.
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