Gross Domestic Product (GDP) was up sharply in September, increasing 1.1% as the economy bounced back from the August power outage in Ontario. The last time GDP registered such a large gain was back in July 1997.

The manufacturing sector was the single largest overall contributor to GDP growth in September. Increased manufacturing output also led to higher activity levels for wholesalers, railways and trucking firms. Public administration, hit hard by the Ontario power outage, returned to pre-blackout activity levels. Increased production of diamonds and metals boosted the mining sector. Higher stock market volumes boded well for the finance sector. The continued boom in the housing market meant higher output for the residential construction industry. A reduction in new car sales pressed retailing activity lower. Industries in the travel-related sector continued to recover from the effects of SARS, although most remain below pre-SARS activity levels.

Industrial production jumped 1.9% after a 0.8% fall in August. Higher manufacturing and mining output more than offset a decline in utilities output. Lower electricity generation due to milder than normal temperatures reduced utilities output. Although this is only the third increase in industrial production since the start of the year, the level is just 0.8% off its January 2003 peak. The index of industrial production in the United States was up 1.0% in the third quarter versus a 0.2% gain in Canada over this same time frame.

Manufacturing rebound plays a large role in economic strength

The manufacturing sector increased production 2.5% in September, accounting for about forty percent of the increase in total GDP. Producers of chemicals, wood products, primary metal products and transportation equipment all more than made up for their reduced production in August. Manufacturers of ICT equipment and parts expanded output for a second consecutive month, up 2.5% in September.

Wholesalers benefited from the increased manufacturing production. Automotive wholesalers reported a surge in activity coinciding with higher motor vehicle sector production and imports. Higher manufacturing production and the rebound in wholesaling had positive repercussions for the transportation sector. The rail transportation industry posted a gain of 2.1%, and the trucking industry grew 1.5%.

Public sector back to normal

Output levels in the public administration sector bounced back 3.0% after a 2.7% drop in August. This sector was one of the major contributors to the decline in GDP in August and with the bounce back was consequently one of the larger contributors to growth in September. This sector was severely impacted by the Ontario blackout and a return to normal working conditions resulted in a return to pre-blackout activity levels.

Mining sector shines

The mining industry (excluding oil and gas) benefited from a number of one-time factors that increased production 15.1%. Production from metal ore mines and refining operations was boosted by the resolution of a three-month labour strike. Diamond production reacted positively to the discovery of a pocket of high-grade ore that resulted in a higher concentration of diamonds per tonne of ore.

Consumers buy more houses less cars

Increased consumer demand for new homes continued in September as residential construction advanced a further 1.6%. This is the fifth increase in the last six months. New home construction is now 6.9% higher than a year ago. Activity by real estate agents and brokers edged up a slight 0.2% on continuing demand for existing housing. Furniture manufacturers and wholesalers also continued to benefit from the housing boom.

Consumers were not as enthusiastic about making purchases at retail stores. Retailing activity declined 0.8% in September, the second consecutive monthly decrease. Much of the weakness is attributable to fewer purchases of new motor vehicles. The number of new cars and trucks sold declined 1.9%. However, lower retail sales were also posted by grocery stores, department stores, gasoline service stations and furniture stores.

Travel sector recovery continues

Industries in the travel-related sector continued to recover from the devastating effects of the SARS crisis in April, although most remain below their pre-SARS levels. The air transportation industry, one of the hardest hit, edged up 0.8% in September and is now 5.7% higher than its May low. The gambling industry remains below its spring peak even with a 10.2% boost in activity in September, while travel agents posted a gain of 4.5%. The hotel industry declined 1.4% this month and remains 6.6% below pre-SARS levels.

Third quarter, 2003

The third quarter ended with sharply higher growth in September, as the economy recovered from the power outage in Ontario that had sent GDP plummeting in August, wiping out July’s solid gains.

Manufacturing declined for a fourth consecutive quarter, resulting in the largest cumulative contraction of output since the “tech-wreck” in 2001. The weakness was widespread, led by producers of chemicals, machinery, pulp and paper products, electric lighting equipment, clothing and textiles. Despite the manufacturing slump, industrial production advanced 0.2%, largely on the strength of diamond mining which has expanded at a stellar pace so far this year.

The suspension of all but essential federal government services for up to six working days as a consequence of the electrical blackout in Ontario reduced federal administration activity 1.4% for the quarter. Provincial government output was less severely affected.

Also declining in the third quarter were wholesalers of automotive products, trucking operations and elementary and secondary schools. The unsettled softwood lumber dispute with the U.S. and the strong Canadian dollar further hampered forestry and logging operations.

Low interest rates continued to bolster a hot housing market. Higher re-sales of existing homes increased output of real estate agents and brokers to double-digit gains. Construction of new houses recorded its best showing since the last half of 2002.

The brisk housing market prompted higher retail sales of furniture and appliances. Generous incentives advanced car and truck sales, driving overall retail activity 0.9% higher. Higher lending coupled with sharply higher stock market activity bolstered the financial sector – which was up 1.7%.

Travel and tourism regained some ground after a dismal first half of the year, impacted by the war in Iraq and SARS. The output of air transportation, accommodations, food services and travel agents are all up significantly.