Economic activity levelled off in August, after a strong showing in July. Gross domestic product (GDP) edged up 0.1%, marking the eleventh consecutive monthly increase.

The consumer’s insatiable demand for housing offset some of the significant declines in the agricultural, mining and utility sectors. Consumers continued to purchase new and existing housing in record numbers. This led to higher levels of output for the residential construction industry, construction-feeder industries in the manufacturing sector, the real estate agent and brokerage industry and the legal services industry. Consumers continued to focus their spending on new houses and cars while reduced purchases of other goods and services lowered retailing activity for a second consecutive month.

Industrial production declines after strong July

Industrial production (mining, utilities and manufacturing sectors) fell 0.4% in August after a sharp 1.6% increase in July. Lower mining and utilities output more than offset a slight gain in the manufacturing sector. Comparable US statistics on industrial production also recorded a decrease of 0.4% in August, as increased mining sector output was not enough to counteract the weakness in the manufacturing and utility sectors.

Canadian mining sector output contracted 1.6% in August owing to weakness in the oil patch. Although oil prices reached $30 (U.S.) a barrel – the highest price since February 2001 - both the production and exploration in search of new reserves fell in August. Electricity generation fell back 1.7% in August despite record temperatures. Cancelled supplies, unscheduled transmission outages and low water levels reduced electricity generation. Electricity exports declined 19% in August after making significant gains in the previous two months.

Manufacturing output edged up a slight 0.1% as gains by durable goods producers more than offset declines by non-durable goods producers. Gains by manufacturers of transportation equipment, fabricated metal products, machinery, furniture and food more than compensated for decreased activity levels by producers of primary metals, printed materials, clothing, computers and electronics.

Housing boom continues

New home construction advanced a further 1.6% in August; residential construction is now 18% higher than year-ago levels. Housing starts in August soared 6.8%, with the strength evenly divided between single and multiple dwelling starts. All areas of the country, with the exception of Ontario, reported significant increases in the number of housing starts. The resale housing market also advanced in August. After peaking in January, the resale housing market had been in a downward spiral, tumbling 21% from January to July. Despite this substantial net retrenchment, the output level of the real estate agent and brokerage industry is still high by historical standards.

The strength in new home construction continued to provide stimulus for the construction feeder industries in the manufacturing sector. Producers of wood products, glass, glass products, cement, concrete and electric lighting equipment all reported gains in August. Manufacturers and wholesalers of household furniture advanced in August as consumer demand for furnishings to fill their new living spaces continued to grow. Consumer demand for new housing also translated into increased activity for legal services.

Car and truck manufacturers benefit from strong sales

Makers of cars and heavy trucks continued to ramp up production levels in August after a strong July increase. Motor vehicle manufacturers benefited from strong North American sales of both passenger cars and trucks. Car buyers flocked to dealerships in droves in August lured by low-interest rate financing and heavy discounting on 2002 models. The record-setting sales pace depleted inventories at the retail level and that bodes well for future production. Heavy-truck manufacturers continued to benefit from the implementation of new US emissions standards on diesel engines that came into effect on October 1st. Fleet operators accelerated buying of heavy trucks ahead of the new regulations, in the apparent belief that the new engines are more costly and less reliable. Exports of trucks surged 45% in August.

Retailing activity eases back

Although consumers are spending record amounts on new houses and cars, they are not breaking any other spending records. Retailing activity edged down in August, the second consecutive monthly decline. Lower consumer traffic levels had the largest impact on sales at department stores and auto part stores (which also sell seasonal merchandise). Consumer spending in the travel-related industries was mixed in August. Lower activity levels were reported in air transportation and restaurants while hotels, travel agents, spectator sports and gambling industries posted increases.

Other industries

There were significant reductions in crop production and forestry and logging. Crop production declined a further 3.5% in August, as western Canada continued to suffer from one of the worst droughts on record. Output levels are now almost 30% below average 1999 levels. The output of the forestry and logging industry was down for a second consecutive month. Sawmill producers, still smarting from the recent imposition of softwood lumber duties, reduced their demand for raw material inputs.