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Higher profits in the oil and bank industries spearheaded a 5.8% upswing in third quarter operating profits to a record high $67.0 billion. The third quarter growth was the strongest in seven quarters, but most of the increase was concentrated in a handful of industries.

Almost half of the third quarter gain came from the banking and oil and gas industries. Motor vehicle and parts manufacturers and telecommunications companies showed significant profit increases as well, but these were mainly due to unusually large charges booked against profits in the second quarter.

Non-financial industries earned $47.5 billion, up 5.7% from the second quarter, which had shown a 0.4% profit decline. The financial industries' profits of $19.4 billion were up 6.2%, building on a second-quarter increase of 5.1%.

Motor vehicles post biggest profit increase in manufacturing sector

Overall profits in the manufacturing sector increased 8.3% to $11.7 billion in the third quarter, but remained well below the most recent high, which reached $12.7 billion in the second quarter of 2004. Profits had declined in four of the previous six quarters. For this sector, third quarter operating revenues were down for a second consecutive quarter. The Monthly Survey of Manufacturing recently reported that manufacturers' sales have shown a weakening trend over the past six months, with the appreciating Canadian dollar playing a major role.

Motor vehicle and parts manufacturers earned $0.6 billion in the third quarter, compared with less than $0.1 billion in the second quarter. However, second quarter profits were trimmed by unusually large operating charges, leading to the third quarter improvement. Operating profits have been on a downward trend since peaking at $2.5 billion in the second quarter of 2000.

Operating revenue for motor vehicle and parts manufacturers declined for a second straight quarter, falling 0.9% to a four-year low of $31.7 billion. Exports of transportation equipment declined, pulled down by lower exports of trucks and motor vehicle parts due to softening US demand.

Wood and paper manufacturers eked out $0.1 billion in third quarter operating profits, compared with a loss of $0.1 billion in the second quarter. Nonetheless, current profits pale in comparison to the high of $2.0 billion earned in the second quarter of 2004.

Operating revenue of wood and paper producers dropped for a third straight quarter, falling 5.9% to $17.2 billion. Quarterly revenue peaked at $21.0 billion in 2004. Ongoing strikes in Western Canada disrupted third quarter lumber production. Lumber and paper exports were tempered by weakening demand from south of the border. As well, returns for exporters continued to suffer the effects of the high-flying loonie.

Petroleum and coal manufacturers' operating profits rose 3.0% to $3.4 billion, reflecting steady demand and robust oil prices. On the other hand, chemical and plastics producers lost ground as their profits fell 10.3% to $1.4 billion.

High crude prices boost oil and gas industry profits

Oil and gas extraction industry profits of $8.0 billion were the highest in four quarters, up 9.6% from the second quarter. Domestic and export crude oil prices strengthened in the quarter, but these increases were somewhat offset by falling natural gas prices.

Other non-financial industries

The information and cultural industries saw profits swell to $3.4 billion from $2.7 billion in the second quarter. Within this group, telecommunication carriers earned a more typical $2.5 billion, following a second quarter tumble to $2.0 billion due to large, one-time remuneration expenses booked in the quarter.

Wholesalers' profits of $4.8 billion were 3.1% above second quarter levels. Operating revenue was essentially flat (+0.3%), following 1.9% growth in the second quarter.

Retailers reported a 3.9% rise in operating profits to $4.1 billion. Operating revenue edged up 0.5% following much stronger growth in the previous two quarters.

Banks lead the financial sector

Operating profits in the financial sector climbed 6.2% to a record $19.4 billion, following a 5.1% rise in the second quarter.

The chartered banks earned all-time-high operating profits of $8.0 billion, up 12.2% from the prior quarter. Bank profits have risen for six consecutive quarters. In the most recent quarter, higher net interest revenue accounted for most of the profit gain. Recently announced asset-backed commercial paper write-downs are not included in these results but may impact fourth quarter results.

Non-depository credit intermediaries' profits of $2.4 billion were up 8.5% from the second quarter. Life insurers saw profits slip 5.0%, while property and casualty insurers' profits were flat.

Profitability ratios

The operating profit margin strengthened from 8.5% in each of the first two quarters of 2007 to 8.9% in the third quarter.

The return on shareholders' equity rose to 12.3% from 11.7% in the previous quarter. This profit measure peaked at 14.3% in the second quarter of 2006.