15-001-XIE
Gross Domestic Product by Industry
December 2001 |
Gross domestic product (GDP) rose 0.2% in December, the third consecutive monthly increase since the plunge in September. With this latest increase, the economy has regained all of the ground it lost in September and is now 0.2% higher than August levels.
As in the previous two months, strong motor vehicle sales lifted up the retail industry and provided the single largest push to the economy. A robust housing market, stimulated by low interest rates, spurred new homebuilding and the activity of real estate agents and brokers. The economy also got a boost from wholesale trade and growing demand for Information and Communications Technologies services. Industries in the travel sector continued to recover from the plunge they experienced in September, increasing output for the third consecutive month. Economic expansion was largely restrained by the continued downward slide in manufacturing and overall weakness in the mining and energy sector.
Retailers benefited from buyer incentives
Increased consumer confidence helped push up retailing activity 1.7% in December. Retail sales have been strong since the introduction of generous incentive programs on new car sales in October. In December, sales by motor vehicle dealers rose a further 3.9%. Furniture retailers also advanced in December as they continued to benefit from increased new home construction and record home re-sales. Increased consumer traffic led to department stores posting strong gains as well. Most of the other retail sectors posted much weaker gains.
Wholesaling activity advanced for the third consecutive month, rising 0.8% in December. Increased wholesaling of motor vehicles and parts was largely responsible for this advance. Wholesaling of machinery, clothing, food and beverages also made gains. These gains were partly offset by lower wholesaling of electrical and computer equipment.
Travel-related industries continue to recover
Industries associated with the travel sector continued to recover from the effects of the terrorist attacks in the US in September. Air transportation increased output 5.1% in December, the third consecutive monthly increase. The output levels in this industry remained 3.8% below August 2001 levels. This pattern of recovery is similar for most of the travel-related industries with varying degrees of improvement. The travel and tour agency output level was still 3.1% below August’s level. The accommodation, car rental, taxi and scenic and sightseeing industries are near or at August levels. By December, the output levels of the gambling and restaurant industries had more than recovered from their September losses.
Low interest rates boosted housing market
Construction activity continued its upward trend, rising a further 0.7% in December. Residential building construction surged ahead 2.4%, the fifth increase in the last six months. Single family home construction accounted for almost all of this strength. The demand for both new and used housing has been propelled by historically low mortgage rates. Real estate brokerage activity surged 9.3% as resale housing sales skyrocketed in December. Engineering and repair construction edged up for the fourth consecutive month. Work on non-residential building projects declined for the third straight month.
Manufacturing slide continues
Manufacturing output fell 0.8% in December, the sixth decline in the last seven months, with 13 of 21 sectors registering declines in December. Producers of paper, wood, chemical and fabricated metal products were chiefly responsible for the weakness in December. There was strength in transportation equipment, thanks to higher production of motor vehicle parts and aircraft. Production of ICT equipment and components was down slightly and not a major contributor to manufacturing weakness as it has been over most of the past 15 months.
Paper production in December reached its lowest level since October 1998. A weak world market accentuated an oversupply of paper forcing several plants into unusually long shutdowns. Although the weakness was general in this sector, the newsprint industry was the hardest hit, declining 9.7%.
Manufacturing of wood products declined for a third consecutive month in December (-2.0%), to its lowest level since July 1998. The sawmill and wood preservation sub-sector was the main contributor to the weakness, while veneer and plywood mills also experienced a large drop. Trade uncertainty in softwood lumber continued past mid-December, when the countervailing duties on exports to the US were dropped.
Chemical products declined 1.2% in December. The strongest drop occurred in the resin, synthetic rubber and fibre production as manufacturers responded to weak demand in automotive related products with layoffs and shutdowns. On a positive note, the continued strength in pharmaceutical products (up 3.1% in December) partially offset these declines.
Longer than usual shutdowns by manufacturers of boilers, tanks and shipping containers pushed down the fabricated metal production sector in December, which declined for the third month in a row.
Mining and energy sector hurt by lower prices
Mining output declined a further 1.8% in December, as lower oil and gas prices continued to discourage exploration activity. Drilling and rigging services output declined 8.0%, the sixth decline in the last eight months. Production of crude oil increased as new capacity came on line, while natural gas producers curtailed output. Lower output of diamonds and potash reduced non-metallic mineral output. Coal production fell significantly in December, declining 10.8%.
Fourth Quarter 2001
A surge in retail trade and an active housing market helped lift the economy up 0.2% in the fourth quarter, after a third quarter decline. Retailing services were up 3.2% in the fourth quarter after a slight decline in the third. New motor vehicle sales were strong, largely resulting from aggressive buyer incentive programs aimed at reducing inventories. Furniture and clothing store sales were also robust. The purchase of new and existing homes, spurred by 40 year-low interest rates, pushed the output of real estate brokers and agents 12.8% higher. New housing construction increased 3.7% - the strongest gain since the fourth quarter of 1999. Wholesaling activity was up 0.9%, led by sales of food and beverages and automotive and lumber products. The fourth quarter also got a boost from federal government administration, which was up 2.1%. ICT services continued to expand at the pace of the previous four quarters (2.3%), slower than in 2000.
Manufacturing fell for the fifth consecutive quarter, declining 1.9% in the fourth quarter. Weakness was widespread as 15 of the 21 major groups were down. Again, producers of ICT equipment and components led the way. Output in these industries tumbled 15.6% in the fourth quarter, marking the fourth consecutive double-digit decline and the steepest in 2001. Notable declines in production also occurred in lumber, machinery, clothing and textile industries. Auto plants reduced output for a fifth quarter over the past year and a half, and manufacturing of auto parts was also lower in the fourth quarter. The pharmaceutical industry, which had a banner year, increased production by 6.8% in the final quarter of 2001.
Falling oil and gas prices in the latter half of 2001 lowered exploration activity in the oilpatch. Drilling and rigging plunged for a second consecutive quarter, declining more than 20% in final three months of the year.
2001
Total economic activity advanced 1.1% in 2001, a somewhat slower pace than seen in the last few years. A global economic slump took its toll on Canadian manufacturers in 2001 as output fell 4.0%, after posting a 5.2% gain a year earlier. Fabricators of ICT products led the decline, as investment in telecommunications and related equipment fell sharply. In addition to ICT, there was widespread weakness in manufacturing as 15 of the 21 major groups (accounting for 68.8% of total manufacturing) lowered production in 2001. Weakness in the manufacturing sector also lowered demand for primary goods and a number of services. On the bright side, ICT services, construction and retail trade continued to post solid gains, albeit slower than in 2000. Federal and provincial public administrations helped boost the economy with their strongest expansions in years.
Industries manufacturing ICT equipment and components reduced production by 25.4% in 2001 following a stellar rise of nearly 40% a year earlier. The decline is most pronounced in the telephone apparatus industry where output has fallen well below 1999 levels. Although motor vehicle sales remained healthy in Canada and the United States, factories rolled back production by 13.1% after a small decline in 2000. The output of auto parts was down 5.3%. The forestry sector had a bad year with lower logging and production of wood and paper products. The output of sawmills was down 7.2%, despite the continued expansion of new homebuilding. Failure to negotiate a new agreement on the exports of softwood lumber to the United States has seriously affected sales south of the border. Production of newsprint tumbled 8.3% as weak global demand pushed prices to seven-year lows. Large declines in production were also recorded in the textiles and clothing industries (down 11.5% and 7.3% respectively), while production of machinery was 4.6% lower. On the bright side, Canada’s pharmaceutical and aerospace industries flourished, with output up 30.8% and 14.3% respectively. The manufacturing of food products advanced 5.3%.
The services sector of the economy was somewhat resilient with output up 2.7%. The demand for ICT services remained strong as output of the supplying industries was up 10.7% after four years of double-digit expansion. Retailing services increased 3.0% on the strength of new motor vehicle sales as well as sharply higher customer traffic at furniture and department stores. Public administration was up, led by the federal government which expanded 6.9%, excluding defence. On the downside, air transportation fell 3.7% as the events of September 11th exacerbated the fate of an industry that was already struggling in light of a weak economy. The decline in goods production pushed truck and rail transportation lower in 2001.
Construction activity held up quite well in 2001, advancing 3.1% compared to 4.6% in the previous year. Low interest rates helped sustain momentum in the building of new homes (+3.0%). Non-residential building, engineering projects and repair construction also experienced similar rates of growth.
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