Gross Domestic Product (GDP) grew 0.4% in December, after growing 0.2% in November, mostly on the strength of manufacturing of durable products, wholesaling of new motor vehicles, construction and transportation and warehousing. Retail trade remained essentially unchanged, while declines in oil and gas extraction and forestry contributed to reduce the overall growth. Sporadic strike activities by Quebec teachers also hampered growth in educational services.

Industrial production (the output of Canada's factories, mines and utilities) grew 0.6% in December, mainly on the strength of manufacturing (+0.9%). Utilities edged up 0.1% while the mining, oil and gas sector declined (-0.1%). In the United States, the index of industrial production grew 0.9% in December, pushed up by manufacturing, utilities and mining output.

Manufacturing gains on a rebound in motor vehicle parts

Manufacturing output rebounded 0.9% in December after a 0.5% decline in November. Production increased in 11 of the 21 major groups, accounting for 70% of this sector's output. The largest increases were recorded mainly in durable goods, especially by manufacturers of machinery (+3.4%), of fabricated metal products (+2.4%), and of transportation equipment (+0.8%). After three consecutive monthly declines, the production of motor vehicle parts recovered strongly, led by gasoline engine and steering and suspension components. Rebounding from its November slump, production of heavy-duty trucks also contributed to the growth in manufacturing. Meanwhile, motor vehicle manufacturing receded for the second consecutive month. Printing and manufacturers of petroleum products recorded declines.

Motor vehicles drive up wholesale but reduce retail sales

Wholesale trade gained 1.3% in December, pulled up mainly by a sharp increase for motor vehicles. This increase offset the 1.0% drop in November, which followed three consecutive months of growing sales. Wholesalers of machinery and equipment and building supplies also increased their sales. Excluding motor vehicles, wholesale trade was essentially unchanged as activities of wholesalers of household and personal goods, of computers and other electronic equipment, and of petroleum products receded.

After two consecutive monthly increases, the retail trade sector remained flat in December. Higher sales of used cars limited a decline in sales of new cars. Retailing activities excluding motor vehicles rose 0.2% as gains in food and beverage stores, and in furniture, home furnishings and electronics stores more than offset the lost in new car sales.

Engineering works continue to stimulate construction activity

Construction activities rose 0.7%, driven by continued strength in residential construction (+0.8%), and in engineering, repairs and other construction activities. This was the fourth consecutive monthly increase in residential construction. With sales of existing homes decreasing in many major metropolitan areas, the output of real estate agents and brokers declined 1.1%, and contributed to the limited growth in activities of lawyers and accountants.

Over the previous 12 months, engineering, repairs and other construction activities and non-residential construction grew regularly. Engineering construction continued to grow strongly (+0.8%) while non-residential construction stayed flat in December. Growth in industrial structures was offset by declines in commercial and institutional buildings.

Energy sector edges down

The energy sector declined in December (-0.5%). Maintenance work at some power plants played a part in a decrease in electricity generation (-0.3%), while warmer than usual weather conditions contributed to lower activities in oil and gas exploration (-0.9%). As well, a decline in natural gas output offset a strong increase in crude petroleum extraction, bringing their combined output down 0.6%. The pipeline transportation of natural gas also declined 1.6%.

Mining activity however gained more strength, increasing 3.1%. Output of metal ore mines grew 2.1% while non-metallic minerals (which include diamonds and potash) gained 4.5%.

Other activities

The transportation and warehousing sector grew 0.7% on the strength of most types of transportation activities. Rail, truck and transit and ground passenger transportation were among the most vigorous industries. Warehousing and storage activities increased 1.9% as warehousing of farm products recorded a strong gain for a second consecutive month.

Sporadic strike activities by Quebec teachers and professionals contributed to hamper the output of educational services as well as that of provincial public administration in December.

Fourth quarter 2005

The Canadian economy expanded at a lower rate in the fourth quarter of 2005 than in the third. However, both the goods-producing industries (+0.8%) and service-producing industries (+0.7%) contributed to growth. The manufacturing of non-durable products, wholesale trade, and construction were the main sources of growth in the quarter. Declines in forestry, educational services, and utilities reduced overall growth.

Industrial production (the output of factories, mines and utilities) increased 0.8% pushed by manufacturing, mining and oil and gas extraction, while utilities decreased 0.7% mostly due to lower electricity production. In the United States, the index of industrial production rose 1.4%, bolstered by manufacturing, while mining and utilities receded.

Manufacturing output increased 0.8%, a rate slightly faster than in the previous quarter. Almost all of the growth was concentrated in the production of durable goods, particularly machinery (+5.4%), transportation equipment (+2.1%), fabricated metal products (+2.4%), and non-metallic mineral products (+3.6%). The growth in durable goods was fuelled by increased U.S. demand for trendy Canadian-made car models, and by domestic demand for machinery, notably construction and mining machinery (+7.7%), due to increasing development activities related to oil production.

The rise in value of the Canadian dollar coupled with the increasing importance of China and India in international trade played a role in the overall decrease in output of non-durable goods (-0.1%), with the notable exception of plastic products (+5.2%).

The increase in imports and exports was also reflected in the growth of wholesale trade activities (+2.0%). Most wholesalers recorded positive results in the fourth quarter, particularly wholesalers of machinery and equipment, motor vehicles, apparel and building supplies. Retail trade however showed subdued activity (+0.4%) compared to the beginning of the year. A decrease in sales of new motor vehicles dragged down the whole sector, as retail trade excluding new car dealerships increased 1.1%. The main areas of growth were in general merchandise stores (including department stores), furniture, home furnishings and electronics stores, as well as service stations.

Construction activities increased 2.3%, their best quarter of the year. There was significant growth in engineering and repair activities (+3.0%) partly due to work related to oil extraction, and to renovation work by homeowners. Non-residential building construction increased 2.6% with all types of structures (industrial, commercial and public) recording gains. Residential building construction also increased (+1.0%) reversing the slight decline recorded in the previous quarter. There were increases in the construction of single and apartment units, but decreases in semi-detached and row houses.

Output of the energy sector increased 1.1%. Oil and gas extraction rose by 2.7%, its best quarter of the year. However, there was a marked contrast between oil extraction and gas extraction. The end of maintenance work, the first oil production from a new oil field, as well as increased demand in the United States after the hurricane season, laid behind a robust growth in oil production. Output of natural gas however decreased after a surge of production in the third quarter attributable to higher exports.

Output of the mining sector declined 3.5%. There was a sharp reduction in the production of all types of metals (-11%), while output of non-metallic minerals (which include diamonds and potash) rose 3.2%.

Activity in the forestry industry fell back 11% due to unfavourable weather conditions, and to the extra logging that occurred in the third quarter in areas affected by the mountain pine beetle infestation.

Restrained by reduced growth in activity on the stock exchanges and by lower sales of existing homes, the finance, insurance and real estate sector advanced 0.7%, its weakest quarter of the year.

Tourism-related industries, such as air transportation (+3.5%) and accommodation and food services (+1.8%) were helped by a rebound in the number of travellers from the United States staying for more than one night, and by a large international conference held in Montreal.

The public sector, including public administration, health and social services, and educational services, was affected by strike activities by British Columbia teachers and by Quebec teachers and professionals; the sector's output nonetheless increased 0.3%.

2005

In 2005, the expansion of the Canadian economy occurred against a backdrop of a strong dollar, an increase in interest rates and record-high petroleum prices. The growth in the service sector (+3.3%) surpassed that of the goods producing industries (+2.5%), which contrasts with the situation seen in 2004. Wholesale and retail trade, finance, as well as construction were among the key contributing sectors to the growth. Weakness was noted in the mining and oil and gas extraction sector while the manufacturing sector did not fare as well as in 2004.

The wholesale trade industry had a bright year, posting the strongest increase (+8.1%) amongst the major sectors of the economy. Notable increases were recorded in motor vehicles, machinery and electronic equipment, and building materials. Strength in imports of goods from other countries (+7.7%) also contributed to strong overall wholesaling activities. Wholesalers of alcohol and tobacco were the only group to record a decrease in activity.

Retail trade increased 4.5% in the year, with particular strength in automotive stores, even if sales of new cars ended the year on a weak note, contrasting with virtually no growth in the year before. Other retailers registered strong sales, particularly food and beverage stores, and furniture, home furnishings and electronics stores.

Activity in the financial sector, including insurance, real estate and rental and leasing, increased 3.4%. Credit intermediation, such as banking activities grew 4.0%, while the higher volumes on the Canadian stock markets led to a 7.5% rise in the output of securities and commodities brokers. The continued strength in the home resale market led to a gain of 5.4% in the activities of real estate agents and brokers.

Construction activities rose 4.7%. Engineering, repair and other construction activities were booming (+6.6%), while non-residential construction advanced 2.8% following two consecutive years of decline. Residential building construction posted a solid gain (+3.0%) for the year, although the smallest since 1999.

Industrial production (the output of factories, mines and utilities) increased 2.1%, but with notable growth differences among the three sectors. Output of utilities (+4.4%) led the way, followed by manufacturing (+2.2%) and the mining and oil and gas extraction sector (+0.5%). In the United States, the index of industrial production rose 3.2%, with increases in utilities and manufacturing but a drop in mining.

Following a healthy gain in 2004 (+4.6%), the growth in output of the manufacturing sector was cut in half in 2005. Manufacturers faced a strong dollar—its highest value against its U.S. counterpart in more than a decade,—high input costs (such as of petroleum) and strong international competition. Fourteen of the 21 major groups advanced, accounting for 88% of manufacturing output.

Almost all of the growth was concentrated in durable goods (+4.0%), with strong gains in machinery, transportation equipment, and computer and electronic products. The manufacturing of information and communication technology (ICT) products increased 14%, reaching levels not seen since 2001. In contrast, output of non-durable goods declined 0.4%, dragged down by textiles and clothing (-8.9%), more sensitive to international competition, and by paper products.

The mining, oil and gas sector grew 0.5% in 2005. First quarter declines in oil extraction, attributable to production difficulties in the tar sands, as well as in oil and gas exploration, hampered the annual performance of the sector. Growth was however recorded in the last three quarters of the year. Oil and gas extraction retreated 1.5% over 2004 while oil and gas exploration surged 14%. Output of coal and metal ore mines both declined, with strike activities recorded in the latter industry. Output in non-metallic mineral mines (which include diamonds and potash) remained virtually unchanged in 2005 as a whole, contrasting with the large increases in the last two years.