Analysis

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Real Gross Domestic Product declined 0.7% in January following decreases of 1.0% and 0.7% in December and November 2008 respectively.

The output of manufacturing, especially of motor vehicle and associated parts industries, along with wholesale trade and construction were the main contributors to the January drop. The finance and insurance sector, transportation, mining (excluding oil and gas extraction), and accommodation and food services, also retreated. Economic activity increased in retail trade, oil and gas extraction and the public sector.

Manufacturing activity decreases

Activity in the manufacturing sector decreased for a sixth consecutive month in January (-3.1%). Export-oriented sub-sectors were particularly hit as the volume of merchandise exports decreased 7.0% in January. While 18 of the 21 major manufacturing groups lost ground, about half of the decline was attributable to a 27% reduction in motor vehicle and associated parts production.

Motor vehicle manufacturers sharply curtailed their output in January in reaction to lower demand in the U.S. This brought the level of production of the Canadian motor vehicle and parts industries to about 40% of the peak recorded in the first quarter of 2007.

Manufacturing industries related to construction activities continued to be affected by the decline in that sector in both Canada and the U.S. In addition, the reduced demand for newsprint led to temporary closures of newsprint mills. Computer and electronic product manufacturing also dropped.

Wholesale trade falls

The volume of wholesaling activity continued to fall in January (-3.4%). The main declines were in the wholesaling of automotive products, building materials, and machinery and electronic equipment. Conversely, the wholesaling of food products and of other products (which include agricultural, chemical, recycled material and paper products) increased.

Construction down

Construction activity was down 3.0% in January. Residential and non-residential building construction as well as engineering and repair work decreased. There was a sharp decline in residential building construction (-6.4%), particularly in the construction of new dwellings. Commercial and industrial building construction also contracted while that of institutional buildings edged up.

The output of real estate agents and brokers continued to decline in January (-2.6%) as housing sales decreased again. This also affected professional services associated with housing sales, particularly legal services.

The finance and insurance sector retreats

The finance and insurance sector retreated 0.7% in January in light of the reduced level of activity in banking services, stock brokerages and mutual fund sales. In particular, banking activities related to residential mortgages and short term business loans declined. However, activities in short term personal loans and fixed term deposits recorded a modest increase.

Retail trade increases

Value added in retail trade increased 1.4% in January, following three monthly declines. The volume of activities at new car dealers rebounded in January from its December decline, but remained below its fourth quarter 2008 level. Some motor vehicle manufacturers have introduced incentives programs to bolster sales.

Excluding new car dealers, retail trade increased 0.5%. Advances posted by supermarkets and beer, wine and liquor stores, helped the sector move forward. These gains were partially offset by the decrease registered by gasoline stations and home centres and hardware stores.

Energy sector output essentially unchanged

The output of the energy sector was essentially unchanged in January. An increase in oil and gas extraction, particularly of natural gas, and in the transportation of natural gas, eclipsed the slip in electricity generation and the significant contraction in support activities for mining and oil and gas extraction.

The storage of natural gas fell significantly in both Canada and the United States, while exports of natural gas to the United States advanced.

The output of the mining sector excluding oil and gas extraction decreased 0.9% in January. The fall in non-metal mines, mostly in potash production, outweighed the rise in metal ore mines.

Other industries

The weakness observed in manufacturing and wholesale trade continued to hamper transportation services, such as trucking and rail. Activities in urban transit transportation fell, largely because of a labour dispute in Ontario. Both accommodation and food services retreated, paralleling a significant reduction in the number of overnight visitors to Canada.