Analysis

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Real Gross Domestic Product dropped 1.0% in December as almost all major sectors reduced production. This follows a 0.7% decline in November.

The output of manufacturing, retail trade, construction and wholesale trade were the main sources behind the December drop. Reduced activity was also recorded in transportation, mining excluding oil and gas extraction, accommodation and food services, and forestry. The public sector (health, education and public administration combined) advanced while the finance and insurance sector was unchanged.

Manufacturing activity falls

Activity in the manufacturing sector fell again in December (-3.0%), with 16 of the 21 major groups losing ground, mirroring declines in exports. Motor vehicle and associated parts production, and the manufacturing of primary metal, chemical and wood products, continued to retreat. In light of the lower demand some motor vehicle manufactures were temporarily shut down during the month, resulting in a 12.0% drop in production.

Retail trade drops

Value added in retail trade dropped 3.5% in December, the largest monthly drop in over a decade. The decline was widespread, with all major trade groups declining. The reduction in the volume of activities posted by new and used car dealers, home centres and hardware, and beer, wine and liquor stores, led the retreat.

Construction down

Construction activity was down 2.3% in December. For the second month in a row all three components of construction retreated. Residential building construction fell with none of the building types being spared. In particular, the construction of single-family and semi-detached dwellings posted significant declines. Similarly, the drop in non-residential building construction was widespread with commercial, industrial and institutional buildings all registering declines.

The home resale market declined further in December. As a result, the output of real estate agents and brokers dropped 4.2% after much stronger declines in the previous two months.

Wholesale trade drops

The volume of wholesaling activity decreased in December for a third month in a row (-2.4%). The main declines were in the wholesaling of machinery and electronic equipment, building materials, and of other products (which include agricultural, chemical, recycled material and paper products). Conversely, the wholesaling of food, beverage and tobacco products increased.

Energy sector output decreases

The output of the energy sector decreased 0.6% in December. A significant drop in support activities for mining and oil and gas extraction led the retreat, although oil and gas extraction advanced 0.9%. Both the extraction of natural gas and petroleum increased.

The storage of natural gas fell in both Canada and the United States along with pipeline transportation. The distribution of natural gas was up, but electricity generation contracted.

The output of the mining sector excluding oil and gas extraction dropped 7.4% in December. Both metal ore and non-metal mines (which include diamonds and potash) declined. Coal mining also contracted significantly.

The finance and insurance sector unchanged

The finance and insurance sector was unchanged in December. The lower volume of activity of stock brokerages and mutual fund vendors neutralized the rises in credit intermediation and in insurance.

Other industries

Rail and truck transportation, along with accommodation and food services, were affected by the widespread decline in economic activity. Rail transportation fell 8.3% in December and truck transportation was down 1.7%. The accommodation and food services sector declined 0.6%.

Fourth Quarter 2008

Real gross domestic product by industry decreased 1.0% in the fourth quarter of 2008, weakening progressively each month. This was the largest decline since the first quarter of 1991.

Declines in the production of goods (-2.4%) were widespread as domestic and foreign demand weakened. Except for agriculture, all other goods-producing sectors receded. Manufacturing led the downturn, experiencing a sixth consecutive quarterly decline (-4.3%). Service-producing industries, down 0.4%, fell for the first time since the third quarter of 1991. The decline in service producing industries was primarily driven by decreases in retail and wholesale trade, and in transportation services, which more than offset increases in the public sector, and in finance and insurance.

Declines in manufactured goods were widespread as 18 of 21 major groups contracted. Manufacturers were particularly impacted by reduced foreign demand. The motor vehicle related industries, as well as iron and steel manufacturing, contributed the most to the decline. Productions of motor vehicle and associated parts (including plastic parts and bodies and trailers) have been trending down since the first quarter of 2006. Declines in iron and steel manufacturing came on the heels of a strong third quarter, matching corresponding fluctuations in international demand over the second half of the year.

Wholesaling activities fell 5.4% in the fourth quarter as a result of lower volume of imports and exports, reduced activities in construction and a drop in consumer demand. Steep declines were recorded in wholesaling of motor vehicles, household and personal products as well as in building materials and other products. Growth in food, petroleum and farm products partially offset the declines. Value added in retail trade also lost ground (-1.6%) with widespread decreases, as consumers shied away from big ticket items.

The mining and oil and gas extraction sector decreased 1.1% over the final quarter of 2008. Overall, the energy sector declined 0.7% in the fourth quarter of 2008.

Construction activities retreated 1.2% as residential construction continued to decline along with engineering and repair activities. After two consecutive declines, non-residential building construction rose 0.9%, owing to increases in institutional buildings. Activity of real estate agents and brokers dropped 22.5%, as the magnitude of the decline in residential unit sales has not been seen since the second quarter of 1990.

The widespread weakness in many sectors of the economy translated into a reduction of output in several transportation industries.

Strength in the fourth quarter was seen in the public sector (+0.9%), and in the finance and insurance sector (+0.5%).

2008

Growth in economic activity slowed to 0.5% in 2008, the slowest growth since the early 1990s. Weakness was evident throughout the year but much more pronounced in the last quarter (-1.0%), especially in November and December.

The production of goods declined 2.8% in 2008, the first decrease since 2001, the year of the tech meltdown. Apart from construction, all the other goods-producing sectors declined in 2008. On the other hand, the service industries grew 2.1%, with all sectors advancing.

Construction activities increased 2.3% in 2008. Engineering and repair work grew at a faster pace than that recorded in 2007. However, the growth in both residential and non-residential building construction slowed. A downturn in the building of new single dwellings and a reduction in the construction of industrial buildings were the primary factors behind this weakness.

Manufacturing declined 5.1% in 2008, marking a third consecutive annual decrease. Employment in this industry, according to the Labour Force Survey, dropped for a fourth year in a row. The decline in production was widespread, with 18 of the 21 major groups retreating. The more notable decreases were recorded in the manufacturing of motor vehicles and associated parts, including plastic parts and of body and trailers. These four industries together accounted for close to half of manufacturing’s decline in 2008.

As with the motor vehicle industries, other export-oriented manufacturers (such as wood, fabricated metal and paper products manufacturers) were affected by the decline in foreign demand. One area which fared well in 2008 was the aerospace industry, whose output grew 10.6%, surpassing its 2001 peak.

Forestry and logging was also affected by shrinking foreign demand, dropping 16.4% in 2008, a fourth consecutive annual decline.

Output of the energy sector decreased 3.3% in 2008, as both oil and natural gas extraction declined. Demand for these commodities was affected by the sharp fluctuations in their prices on international markets. In January, the average price of a barrel of crude oil was $94, increasing to reach a peak of $136 in June and closing the year at $52. The price of natural gas followed the same general pattern.

In the service sector, the major contributors to growth were the public sector (education, health and social services and public administration combined) which grew 3.0%, finance and insurance, and retail trade.

The finance and insurance sector advanced 3.1%, the slowest growth since 2003. Credit intermediation and insurance both advanced, but stock brokerage and related activities were essentially flat after recording an average growth of 8.8% from 1999 to 2007.

Value added in retail trade advanced 3.1% in 2008, almost half the growth recorded in each of the previous two years. All major components advanced.

Growth in wholesale trade sector was essentially flat in 2008, a weakness not seen since the decline in 1991. Wholesalers, who are also involved in activities related to exports and imports, were impacted by lower volume of external trade.

Another area of weakness in services was the real estate agents and brokers industries, which declined 18.0% in 2008 and was a major contributor to the 2.2% decline in output of the legal and accounting services industry. After nine years of essentially uninterrupted growth, the home resale market pulled back as the number of residential units sold declined 17.1%.