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Gross domestic product by industry
Following a disappointing January and February, the quarter ended on a strong note, as GDP in March shot up 0.7%. This was the sharpest increase in monthly GDP since the bounce back from the power blackout in August 2003.
The strength in the economy was widespread with a major contribution from the manufacturing sector, particularly the motor vehicle parts and assembly industries. Robust manufacturing resulted in higher demand for transportation, wholesaling and warehousing services. The consumer’s insatiable demand for housing and cars boosted the output of residential construction, retail trade and real estate agents and brokerages. Higher volumes in the stock market boded well for the finance sector.
Industrial production increased 0.7%, the sixth increase in the last ten months. Higher manufacturing was somewhat offset by lower utilities and mining output. Electricity generation and natural gas distribution continued to fall from January’s peak as temperatures returned to seasonal norms. The recovery from a strike in the metal ore mining industry and an upsurge in diamond production were not enough to offset a contraction in oil and gas production and exploration. In the United States, industrial production edged down 0.1%, the first decline in ten months. Sharply lower utilities output offset higher mining and a slight increase in manufacturing output in the United States.
Autos drive manufacturing sector
The output of the manufacturing sector increased 1.5% in March, its strongest growth since September 2003. Although the gains were widespread, much of the strength came from the transportation sector which climbed 3.1%.
Automakers bumped up production in March for both autos and heavy trucks (+4.3%), as generous sales incentives continued to boost demand on both sides of the border. Automotive parts output also rose sharply (+3.3%), reaching new heights in order to satisfy demand from North American auto manufacturers. The wholesaling and export of motor vehicles as well as of automotive parts were up significantly.
Output of wood products regained some strength as sawmills ramped up production in March. Construction-related wood products, such as veneer, plywood and structural wood also enjoyed increased output, as demand from the hot housing market in both Canada and the United States continued. This strength in the manufacturing of lumber also boded well for lumber wholesalers and the forestry and logging industry.
The fabricated metal products sector posted its strongest monthly increase in two years (February 2002), as production in the architectural and structural metal manufacturing industries regained some strength after two consecutive months of weakness. This sector is also a supplier to the residential construction industry, which had robust growth in March.
Computer and electronics products manufacturing almost bounced back to their December 2003 levels, as radio and television broadcasting and wireless equipment output surged in light of new contracts. Strong worldwide demand helped the semiconductor and electronics industries to regain some ground.
Consumers regain confidence
According to the Conference Board of Canada consumer confidence rebounded in March from its slide one month earlier. The increase in consumer confidence fuelled the retail and residential construction sectors. New home construction jumped 6.5% in March, the biggest monthly increase since May 1991. Housing starts surged in both February (+10.2%) and March (+13.9%), with both single-family and multiple-unit dwellings registering gains. It was also an exceptional month for the re-sale housing market. Housing re-sales climbed 12.7%, resulting in a substantial increase in activity at real estate agents and brokerages.
Retailers posted their third consecutive gain in March with sales rising a further 1.1%. Sales at new motor vehicle dealers were up an additional 2.0%, following a 9.1% surge in February. This recent surge still leaves sales at motor vehicle dealers 3.2% below the peak reached in July 2003. Sales excluding new motor vehicle dealers were up 0.8% in March with retailers of most goods registering gains.
Travel and tourism industries
The total number of visitors to Canada declined 1.1% in March; however, the number of tourists staying one or more nights increased 1.2%. Most travel and tourism industries recorded gains in March. Increases reported by air transportation, car rental agencies, travel agents, taxis and hotels. Meanwhile declines were reported by gambling and restaurant industries, which also rely quite heavily on domestic demand.
Fourth Quarter, 2004
A confident consumer was responsible for much of the strength this quarter. Continuing gains were seen in residential construction and real estate brokerage services as the demand for new and existing housing increased. Retailers reported significant and widespread gains as shoppers increased their purchases of everything from new cars to new shoes. A buoyant stock market propelled the output of the financial sector. Higher manufacturing output also translated into increased demand for warehousing services. Stronger oil and gas production helped lift the mining sector while a bitterly cold January led to higher utilities output. Higher government administration and health care services were in turn offset by a reduction in education services. Wholesaling activity declined significantly as motor vehicle wholesaling tumbled after a surge in the fourth quarter.
Industrial production (mining, utilities and manufacturing) advanced 0.7% in the first quarter, the third consecutive quarter increase with all major components reporting gains. In the United States, the index of industrial production increased 1.5%, as higher utilities and manufacturing output offset a slight decline in the mining component.
A further cut in already historically low interest rates re-ignited consumer spending. Retailers reported their largest quarterly gain since the first quarter of 2002. However, sales at new motor vehicle dealers rose only a slight 1.0% in the first quarter, after stumbling 6.0% in the fourth. Sales excluding new motor vehicle dealers were up 3.2% with gains reported by retailers of food, clothing, shoes, drugs, gasoline and auto parts.
The housing boom continued into the first quarter as residential construction increased 4.0%, marking the eleventh consecutive quarterly increase. Meanwhile, the resale housing market edged up 1.0%, following a significant decline in the fourth quarter. The strong housing market led to increased sales at furniture stores and higher production levels for furniture and appliance manufacturers. Manufacturers of construction-related materials also derived benefit from the housing boom.
The output of the manufacturing sector increased for the second consecutive quarter, following four quarters of decline. These new gains lifted the manufacturing sector to levels last registered in the fall of 2000, at the peak of the technology bubble.
Most of the strength in manufacturing this quarter came from durable goods—the transportation sector alone being responsible for half of that growth. Significant gains were also registered in the machinery as well as in the computer and electronic industries.
The motor vehicle industry, with gains of 5.2%, showed the strongest quarterly growth since the summer of 2002, when it climbed 9.1%. Generous incentives and successful new model introductions for both cars and trucks, as well as strong demand from south of the border accounted for this solid growth. The manufacturing of motor vehicle parts also moved ahead, fed by higher motor vehicle production in both Canada and the US, but at a slower pace than in the fourth quarter of 2003. Output of aerospace products and parts, however, continued on its downward trend, declining for a sixth consecutive quarter.
Machinery manufacturing advanced 1.3%, as demand for construction, mining and oil and gas machinery mirrored the heightened activity shown in these sectors.
A surge in the manufacturing of broadcasting and wireless communications equipment, fuelled by new products and contracts, pushed the computer and electronics industry up 1.4% in the first quarter of 2004. Semiconductor production continued on its recovery trend, increasing for the third consecutive quarter.
Fewer contracts as well as temporary and permanent plant closures shrank clothing manufacturing output by 4.0% this quarter. Reductions in trade barriers and expanding global competitiveness are taking its toll on this industry. Activity in the cut and sewn clothing industry slipped to its lowest level in seven years.