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Economic output contracted 0.7% in December, after increasing 0.1% in November and 0.3% in October. Significant reductions in manufacturing activities, wholesaling, as well as in oil and gas extraction were the main sources of the December decline. Modest gains were recorded in mining, excluding oil and gas, and the financial sector, while construction remained unchanged.

Extended holiday shutdowns reduce motor vehicle production

Manufacturing activities tumbled 3.2% in December, reaching the lowest level since December 2001. Motor vehicle production dropped 27%, the largest monthly decline since production cutbacks in January 1990 caused a 37% reduction in activity. The major drop in motor vehicle production in December was primarily due to extended holiday shutdowns related to inventory control and re-tooling for new models. Excluding motor vehicle and parts production, economic output contracted 0.4% in December. Preliminary information for January 2008 indicates a partial rebound in motor vehicle manufacturing from its December level.

Declines in the manufacturing sector were widespread, with 17 of the 21 major groups decreasing. Both the manufacturing of durable (-4.8%) and non-durable goods (-0.9%) fell. Other notable drops were recorded in wood products, machinery, and non-metallic mineral product manufacturing. Conversely, minor increases were noted in chemical, computer and electronic product, and petroleum and coal products manufacturing.

Some transportation industries were affected by the downturn in manufacturing, such as rail and truck transportation, as was the wholesale trade sector.

Wholesale and retail trade decline

Wholesaling activities fell 2.0% in December. This decline was largely due to the fall in the trade of automotive products, food and beverage products, and machinery and electronic equipment. However, wholesaling of grains rebounded from last month’s slump as did metal products. Value added in the retail trade sector edged down slightly (-0.1%).

Energy production loses ground

The energy sector slipped 1.2% in December. The oil and gas extraction industry contracted 1.7%, dragged down by a decrease in petroleum extraction. The production of natural gas increased, although the quantity of natural gas in storage remains high in both Canada and the United States. The production of electricity fell 1.2% in December.

The output of the mining sector excluding oil and gas leaped forward 1.4% in December. Both metal mines (+1.4%) and non-metal mines (+1.6%) showed significant advances for the month. Support activities for mining and oil and gas extraction slipped 1.1%.

Industrial production (the output of mines, utilities and factories) dropped 2.4% in December, with all three sectors declining. In the United States, industrial production edged up 0.1% in December as manufacturing increased, while mining and utilities contracted.

Other industries

The construction sector was unchanged in December, as activity may have been restrained by heavy snowfalls in some parts of the country. The increases in non- residential building construction (+0.1%) and engineering and repair work (+0.1%) were neutralized by the 0.4% decline in residential construction. The home resale market continued to cool. As a result, the real estate agents and brokers industry fell 2.1% for the month.

Activities in the finance and insurance sector grew 0.2 %. Banking activities increased 0.4% on the strength of business and personal loans, residential mortgages and mutual fund sales.

Fourth quarter 2007

Economic activity grew at a much slower pace in the fourth quarter of 2007 than in the previous three quarters. The Canadian economy contracted 0.7% in December, after increasing 0.1% in November and 0.3% in October.

The output of the service industries expanded 0.7% in the fourth quarter, while the production of the goods industries contracted 0.9%. Wholesale and retail trade, along with utilities, recorded the strongest gains. The finance and insurance sector, construction, forestry, and accommodation and food services also contributed to the overall increase. These gains were partly offset by declines in manufacturing, mining and selected transportation industries.

The wholesale trade sector continued its ascent with an increase of 1.3% for the quarter. This increase was widespread across several trade groups. Notable growth was recorded by merchants of motor vehicles, building supplies, and computers and other electronic equipment. Declines in the wholesaling of grains and of metal products were the main impediments to the increase.

The value added by the retail trade sector advanced 1.0% in the fourth quarter largely due to a strong showing by new and used car dealers, pharmacies and specialized building materials and garden stores. Furthermore, activities at general merchandise stores were very strong. This trade group includes department stores, warehouse clubs, superstores and home and auto supplies stores.

The energy sector fell 1.0% in the fourth quarter. Utilities posted a significant increase (+2.5%). Oil and gas extraction dropped 3.0%. Concurrently, pipeline transportation, and petroleum and coal products manufacturing slipped. Support activities for mining and oil and gas extraction advanced for a second consecutive quarter, contrasting with the double-digit drop seen in the first half of the year. Mining excluding oil and gas retreated by 1.6% as copper, nickel and lead mines accounted for most of the loss.

The finance and insurance sector advanced 0.9% on the strength of banking. Real estate agents and brokers posted a second consecutive quarterly drop (-3.2%) as the home resale market continued to cool, following record-high levels earlier in the year. Construction activities grew 0.7% in the fourth quarter. This growth was led by residential construction.

Manufacturing activities continued their downward movement for a second consecutive quarter. Manufacturing fell 1.6% in the fourth quarter and 0.8% in the third. These two declines occurred as the dollar started its strong appreciation vis-à-vis its U.S. counterpart in April. Of the 21 major groups, 17 decreased during the fourth quarter, these accounting for 87% of total manufacturing value added. The production of non-durables and durables declined 1.7% and 1.6% respectively. Motor vehicle and associated parts manufacturing fell during the quarter, especially in December primarily due to extended holiday shutdowns. Plastic and rubber, sawmills and paper production also dipped. These declines were minimally offset by increases in primary metal manufacturing and printing.

Industrial production (the output of utilities, mines and factories) dropped 1.4% in the fourth quarter. The significant declines posted by manufacturing and mining overshadowed the gain in utilities. In comparison, industrial production in the United States decreased 0.3% for the quarter. Both mining and utilities moved ahead, while manufacturing fell.

Tourism-related industries fared well during the quarter. Air transportation increased 2.2% while the accommodation and food services sector rose 1.2%. The number of international travellers staying one or more nights to Canada advanced 1.8%.

2007

Canadian economic activity, as measured by value added by industry, increased 2.5% in 2007, slowing slightly from the 2006 pace (+2.9%). The economy started 2007 on a strong note but lost momentum during the second half, closing the year with a 0.7% decline in December. Again in 2007, and for a seventh year in a row, the services industries (+3.4%) outpaced the goods-producing sector (+0.8%). Throughout the year the Canadian dollar continued its ascent relative to the U.S. currency, hovering at virtual parity during the course of the fourth quarter.

Finance and insurance, retail and wholesale trade, and construction were the main sectors contributing to growth in 2007. The energy sector also continued to expand with growth being restrained by a reduction in support activities for mining and oil and gas extraction (which includes exploration). Although it started the year on a positive note, manufacturing was once again hit hard in 2007 (-1.1%) with decreases in both durable and non-durable goods producing industries. But significant declines were also experienced in forestry and logging and their associated support activities.

Finance and insurance activities moved ahead 5.4% and once again provided significant growth to the economy. Banking activities accelerated 7.5% while securities trading jumped 10.2% with sustained increases in the volume of transactions on the Canadian stock exchanges. Insurance activities tempered growth in the sector, declining 0.9% over the year.

For the second year in a row, the value added by the retail trade sector was a major contributor to growth in the economy, advancing a strong 5.6% in 2007. Consumers continued to purchase furniture and computers at a substantial rate. Growth was once again widespread with other notable contributors being used cars and parts, new car dealers, home electronics and clothing stores. Wholesaling activities were also a major source of strength (+4.3%), led by home and personal goods as well as building supplies. Wholesaling of pharmaceuticals, metal products, machinery and electronic equipment were also up sharply.

Manufacturing activity decreased 1.1% in 2007, the second annual decrease in a row. Employment in the sector receded by 72,800 jobs from 2006 according to the Labour Force Survey. Also for the second consecutive year the contraction was mainly attributable to the non-durable industries, which fell 2.4%. Of the 21 major manufacturing groups, 12 decreased, accounting for 59% of total manufacturing value added.

As in 2006 the manufacturing subsectors highly sensitive to exports suffered the greatest in 2007. For instance, wood product manufacturing declined a further 10.7% after dipping 4.4% in 2006 while exports of forestry products as a whole declined in each of the four quarters throughout the year as the U.S. housing market experienced significant declines. Motor vehicle production experienced its second consecutive yearly decline (-5.1%), partly as a result of extended shutdowns. Other industries that followed similar movements were the textile and clothing industries (-8.5%).

Providing the largest counter to the decline was the continued expansion of food manufacturing, up 2.2% .The production of non-metallic minerals (+5.5%), fabricated metal products (+2.6%), machinery (+2.5%) and computer and electronic products (+3.5%) also continued to grow in 2007. Robust ship and boat building activities paired with increases in other transportation equipment and continued strength in aerospace product and parts manufacturing largely mitigated the decline in the manufacturing of transportation equipment.

Construction activities continued to expand (+4.2%) fuelled once again by increases in repair and engineering construction work (+6.3%), which experienced double digit gains in both 2005 and 2006. Both residential and non-residential construction advanced through the year. Residential construction moved forward helped by alterations and improvements work as singles continued their decline from 2004 highs. Non-residential construction grew 1.2% on moderate increases in industrial buildings and strong growth in commercial buildings while public buildings contracted. The real estate agents industry climbed 7.1%, following a lacklustre year in 2006, as the home resale market showed strength.

The energy sector accelerated 1.5% on the strength of oil and gas extraction (+3.0%) and electricity production (+3.4%). Most of the increases in oil and gas extraction once again stemmed from the extraction of non-conventional oil. Natural gas extraction declined as companies completed the lowest number of gas wells since 2002. Also contributing were the continued high levels of storage of natural gas in both Canada and the United States, reaching an all-time high late in the year. Mining excluding oil and gas increased 7.6% as the production of potash rebounded 26.1% in 2007, following lengthy contract negotiations in 2006.

Industrial production (the production of factories, mines and utilities) moved ahead 0.3% and was tempered by the decline in manufacturing. Industrial production in the United States rose 2.1% as manufacturing, mining and utilities all advanced.

Forestry and logging activities decreased 10.5% partially as a result of lengthy labour disputes in western Canada as well as decreased demand for exports, particularly to the United States. Within Canada throughout the year this impact could be seen in a variety of downstream industries, such as sawmills.