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Gross domestic product by industry
The latest economic expansion continued in December 2002, matching the slower pace set in November, as GDP edged up 0.1%. This is the 15th consecutive increase in monthly GDP.
A resilient consumer and a vibrant mining and oil and gas sector were the main contributors to growth in GDP in December. Consumers continued to purchase new homes, cars, furniture and travel-related services leading to expanded output in retail trade, construction, air transportation, hotels and restaurants. Higher production of natural gas and increased exploration activity were the source of strength in the mining and oil and gas sector. These gains were offset by reduced output in the manufacturing sector and lower activity levels in truck transportation and the finance sector.
Consumers continue to spend
Retailing activity increased 0.6% in December, mostly the result of a 1.7% increase in sales at new motor vehicle dealers. Expanded incentive programs from motor vehicle manufacturers provided a boost to sales. Although new car sales fell for much of 2002 after peaking in January, sales for the year were up 7.1%. Higher furniture sales also contributed to the strength in the retail trade sector. Furniture store sales have increased substantially since the middle of 2001 - similar to the trend of the residential construction industry.
The housing boom continued into December as new-home building increased a further 0.6%. This industry has gained 26.6% since mid-2001. The pace of growth however, slowed in recent months as housing starts fell 6.3% in December. The weakness in starts was completely attributable to a 17.3% decline in multiple housing starts. Atlantic Canada was the only region in the country that reported an increase in housing starts. Meanwhile, the resale housing market weakened further, dropping 2.8%, following a similar decline in November.
Higher energy prices spur exploration activity
The mining and oil and gas sector finished the year strongly after a rather lacklustre 2002. Output increased 1.8% in December, following a 0.9% gain in November; however, for the year as a whole, output remained essentially unchanged from 2001 levels. Rising energy prices propelled production of natural gas and oil and gas exploration activity in December. Metal mines and non-metallic mineral mines also boosted output.
Industrial production held back by weak manufacturing sector
Industrial production (mining, utilities and manufacturing sectors) increased 0.1% as higher mining and oil and gas output offset lower manufacturing and utilities output. Industrial production remained essentially unchanged for the August to December period. Comparable US statistics on industrial production showed a drop of 0.5%, also reflecting weak manufacturing and utilities output.
Manufacturing output declined 0.3%, as producers of both durable and non-durable goods scaled back production. Lower manufacturing output reduced demand for truck transportation services and electricity. Reductions in transportation equipment manufacturing were the largest contributor to the weakness in manufacturing in December. Manufacturers of motor vehicles and heavy trucks trimmed production a further 1.0%, the fourth consecutive monthly decrease. Motor vehicle manufacturers have curtailed production in recent months in an attempt to pare back excess inventories. Motor vehicle parts manufacturers reduced production 2.1%, following a similar sized gain in November. Labour strife in the aerospace production and parts industry had negative consequences on production levels as output fell a further 2.9%.
Fourth Quarter, 2002
The Canadian economy continued to show strength in the fourth quarter of 2002; albeit growing at a somewhat slower pace than the rest of 2002. This slower rate of growth resulted from decreased output in manufacturing and agriculture as well as lower activity levels in the finance sector. The economy was buoyed by the services sector which registered a gain of 0.6% in the fourth quarter. Higher activity levels in wholesale and retail trade, public administration, health care services, real estate services, professional and administrative services were behind the strength in the services sector. After registering significant increases since the beginning of 2002, goods-producing industries took a breather in the fourth quarter, the result of a largely weaker manufacturing sector.
Wholesaling activity increased significantly in the fourth quarter. Growth in wholesale trade was widespread, with the notable exception of grain dealers, hampered by the drought in western Canada. Wholesalers of automotive products registered the largest gain, continuing a trend that started early in 2001. Retailers also enjoyed higher activity levels, although the strength was not widespread.
Construction registered solid gains, thanks to a strong housing sector. Although new home construction grew slower than the previous quarter, the level remained 17% higher than year-ago levels. Construction-related manufacturing industries showed mixed results. Fabricators of wood products, asphalt paving and roofing, concrete products as well as glass products increased production significantly. However, manufacturers of gypsum products, household appliances and household furniture reported lower output levels. Following a lull in household furniture purchases in the third quarter, consumers were back in the stores in the fourth quarter, and furniture stores registered the largest gain in the retail trade sector. After peaking in the first quarter of 2002, retail sales of new motor vehicles gradually declined to year-ago levels.
Professional, scientific and technical services industries continued to grow in the fourth quarter, mostly due to computer systems and related services. Administrative and support services also increased strongly. Expansion of the public administration sector was evenly distributed between federal, provincial and territorial governments as well as municipal public administration. Gains in the health care sector, although not as strong as in the previous quarter, were also widespread. Most levels of government registered strong gains in employment during the fourth quarter.
Industrial production declined slightly in the fourth quarter, declining 0.1%, as gains in the mining and utilities industries were more than offset by a drop in the manufacturing sector. This was the first decline in industrial production since the fourth quarter of 2001. American industrial production showed a more pronounced decline (-0.7%) for the same period as manufacturing and utilities output decreased.
A plunge in transportation equipment manufacturing was largely responsible for the weakness in the manufacturing sector. Weaker motor vehicle sales in the United States resulted in a build-up of inventories. Canadian motor vehicle manufacturers had scaled back production continuously since August in an attempt to reduce these high inventory levels. Motor vehicle exports plunged 11% in the fourth quarter – motor vehicle exports have declined continuously since August 2002 following the same path as motor vehicle production. Labour strife and continuing problems in the global air travel industry translated into further reductions in manufacturing output of new aircraft.
The Canadian economy put in a relatively solid performance in 2002, posting the strongest GDP growth of all G7 countries. The creation of more than 500,000 new jobs and the continuation of low interest rates kept consumer confidence levels high for much of the year. This stimulated demand for big-ticket items such as houses, cars and furniture.
Residential construction activity was up 16.2% in 2002 – the strongest showing since the mid-80’s. This stimulated the manufacturing of construction materials. The resale housing market also enjoyed a banner year as activity levels for the real estate agent and brokerage industry jumped 10.1%. Retailers' activity expanded 6.1%, which was most evident in sales at motor vehicle dealers, furniture stores and department stores. Pharmacies also experienced significantly higher activity levels. Wholesaling activity was up sharply, 7.1% as automotive, lumber and furniture wholesalers had a particularly busy year.
The manufacturing sector posted a respectable 2.6% gain after falling 4.6% in 2001. The production of wood products increased 10.0% after a decline in 2001. Output in this industry was bolstered by strong North American residential construction demand. Exports to the United States were higher, despite the imposition of a 27% tariff, as quotas on softwood lumber were eliminated. The automotive sector had a good 2002 after a dismal showing in 2001. The production of motor vehicles was up 4.8% while fabrication of parts shot up 9.3%. Canada’s pharmaceutical industry had another banner year with output expanding nearly 60% over the past two years. Meanwhile, Information and Communication Technologies (ICT) manufacturing continued its downward slide, plunging 17.2%, a less torrid drop than the previous year. Output of the aerospace industry was down after three years of double digit growth, as world-wide airlines are still reeling from the events of September 11th as well as generally uncertain economic and political conditions.
ICT services remained relatively strong as demand for telecommunications services pushed output in this industry 9.6% higher, after several years of double digit growth. Industries providing health care services were about 4% higher while federal government administration increased 4.7% in 2002. Crude petroleum extraction was up 8.5% given favourable price and demand factors, but oil and gas exploration activity was down sharply for the year overall. Severe drought conditions in western Canada were largely responsible for a second consecutive 12% reduction in crop production.