The Canadian economy paused in September 2004, after a 0.4% expansion in August. A slowdown in foreign demand and unfavourable weather in the Prairies contributed to this flat performance.

Weakness was concentrated in the goods producing sector, as output in mining, manufacturing and construction declined. Lower exports not only impacted on manufacturers, but also reduced wholesaling activities. A slowdown in housing resales further hampered growth in the services sector. Consumers helped sustain retailing activity in September, but reduced their expenditures on new and used motor vehicles.

Industrial production (the output of Canada's factories, mines and utilities) retreated by 0.3% in September after six consecutive months of expansion. Both the mining (-0.8%) and manufacturing (-0.2%) sectors contributed to this setback, while output of utilities increased 0.4%. In the United States, the index of industrial production increased 0.1% in September on the strength of utilities, pulled back by weakness in the manufacturing and mining sectors.

Output falls in the mining sector

The mining sector was pushed down by a sharp reduction in the output of diamond mines (-17%), following two banner months of production. Lingering strikes throughout September pulled the output of iron mines down a further 22%. Oil and gas extraction was up 0.2%. Drilling and rigging activities were hampered by bad weather in the Prairies, pulling down services incidental to mineral extraction by 1.6%.

Non-residential building construction continues to slide

Construction activity edged down 0.1% in September. The construction of non-residential buildings declined for a sixth month in a row (-1.3%). A reduction in the construction of institutional and industrial buildings was behind this decrease. The value of non-residential building permits was also down, with a large decrease in the value of permits for institutional buildings largely offset by a sharp increase seen for industrial buildings.

Residential construction picked up slightly (+0.2%) after posting solid gains in July and August. There was an increase in the construction of detached single family houses and duplexes. Row and apartment housing construction was down. All three major census metropolitan areas (Toronto, Montreal and Vancouver) saw large declines in housing starts in September. Real estate transactions also declined, bringing the output of real estate agents and brokers down 3.6%, as well as architectural and legal services.

Reduced export demand curtails manufacturing

The manufacturing sector retreated 0.2% in September largely due to a decline in durable goods. Motor vehicle assembly was down 3.6% after a robust production in July and August. Strong demand for heavy-duty trucks helped temper the September decrease. The production of many types of machinery remained strong in September. There was, however, a large decline in the production of engine, turbine and power equipment following a record-setting pace in August. Manufacturing of fabricated metal products was up 1.3% in September. Lower output of sawmills and of veneer, plywood and particle boards brought wood products manufacturing down 1.1% from recent summer peaks.

Food products manufacturing rose 0.5% in September, largely on the strength of meat products (+3.0%). More cattle and poultry were processed with the ageing of the increasing cattle stock, and the rebuilding of the poultry stock following the avian flu cull. After seven consecutive months of increase, the output of chemical products slipped 0.1% in September. Output of the clothing industry increased 0.6%, after months of decline leaving production levels 9% lower than a year-ago.

Lower sales of automotive products hamper retail and wholesale trade

Retailing activity was up 0.2% in September as consumers increased their purchases at food and beverage stores, home electronics outlets and pharmacies. Activity in computer stores retreated from an August surge, but it still stands above the July level. The surge in oil prices may have modified the spending pattern of consumers, as sales of new and used motor vehicles contracted in September.

Wholesaling activity decreased 0.4% with a reduction in both export and import trade flows. Automotive and computer products were important contributors to this decrease. An increase in the wholesaling of machinery and equipment partly offset these declines.

Other sectors

A wet and cold September in the Prairies severely affected harvesting. The unfavourable weather dashed hopes of a significant harvest by retarding it into October, and by lowering its quality, particularly that of wheat. Forestry and logging activity was up 5.2% as timber quotas were increased in British Columbia to combat the pine beetle infestation. Output in the arts and entertainment industry was curtailed in September as attendance to professional sporting events was reduced by the beginning of a lock-out.

Third quarter 2004

Third quarter growth was bolstered by a strong export induced manufacturing sector with added strength from wholesaling and retailing activities as well as information and communication technology (ICT) related services. Economic expansion in the third quarter was somewhat hampered by strike activity.

Industrial production (the output of factories, mines and utilities) was up 1.5% as higher output of manufacturers and utilities was dampened by a decline in the mining, oil and gas sector. In the United States, the index of industrial production rose 0.8%, with increases in the manufacturing and mining sectors, while output of utilities declined.

A 2.0% increase in the output of manufacturers was mainly due to sharply higher production of motor vehicles, chemical products, machinery, fabricated metals products and ICT equipment. Manufacturing output was partly constrained by a declining clothing industry, reduced production of non-metallic mineral products and sharply lower production of aluminum due to strike activity.

Wholesaling activity was up 1.9% led by machinery and computers and electronic products. Retailing services were 1.5% higher spurred by the sale of big ticket items like new cars, furniture, computers, home electronics and home improvement products. The output of ICT related services expanded by 3.2% in the third quarter. Hospitals more than recovered from strike activity in the second quarter.

Output of the mining, oil and gas sector fell 0.4% largely due to a precipitous 44% decline in iron ore mining due to maintenance and labour stoppages. Despite high crude oil prices, oil extraction was reduced partly because of maintenance work. Drilling and rigging activities also declined for the third consecutive quarter. On the positive side, diamonds continued to sparkle (+19%). Strong export demand pushed up the mining of nickel and potash.

Residential construction hit new highs in the third quarter (+1.9%). Activity of real estate agents and brokers fell 4.7% as sales of existing homes were down. Non-residential construction of buildings fell for a fifth consecutive quarter with a sharp 3.7% decline in the third quarter.