Canadian Industries Reduce Rate of Capacity Utilization in 1Q

Canadian industries continued to reduce their rate of capacity utilization in the first quarter of 2009, operating a 69.3% of production capacity, down 5.6 percentage points from the previous quarter. It was the first time that industrial capacity use fell below the 70% level since the start of the data series in 1987.

In the first quarter, durable goods industries, especially the transportation equipment industry, the construction sector, and the mining sector (excluding oil and gas extraction), were the main contributors to the overall decline. Weakened global and domestic demand for manufactured goods continued to drive down capacity utilization rates. Of the 21 major industries in the manufacturing group, 18 registered lower rates.

As it did in the fourth quarter of 2008, the transportation equipment industry led the first quarter decline in the manufacturing group. Capacity use in this industry fell from 58.3% in the fourth quarter to 42.5% in the first quarter of 2009.

In the non-manufacturing group, capacity use fell in all sectors, except for the oil and gas extraction sector. The most notable drop occurred in the mining sector, where utilization fell by 14.8 percentage points from the fourth quarter to 55.3%, the lowest rate ever posted by this sector.

Manufacturing
Manufacturers lowered their use of production capacity in the first quarter to 65.9%, down 7.8 percentage points from the fourth quarter of 2008. This was the largest quarterly decline on record for the entire manufacturing sector.

Durable goods industries recorded significant decreases in the use of capacity. Transportation equipment, primary metals, fabricated metal product, machinery, and wood product manufacturing industries accounted for most of the decline in capacity use.

Capacity utilization in the transportation equipment industry fell 15.8 percentage points from the fourth quarter and 35.0 percentage points from the first quarter of 2008, as manufacturers of motor vehicles and associated parts sharply cut back their production to levels approaching the second quarter of 1994. Numerous plants reported extended closures and slowdowns in January in reaction to lower demand in Canada and the United States.

In the primary metal manufacturing industry, capacity utilization decreased by 10.1 percentage points to 74.9%. This reflected a large decline in production of iron and steel mills and ferro-alloy manufacturing, and in foundries.

The utilization rate in the fabricated metal product manufacturing industry declined from 77.2% in the fourth quarter of 2008 to 70.5% in the first quarter of 2009. The major contributor was lower production in architectural and structural metals manufacturing.

Capacity use in the machinery manufacturing industry fell 6.4 percentage points to 75.6%. The drop was due largely to declining output in construction machinery, mining machinery and metalworking machinery manufacturing, in line with the reduced needs of the using industries.

The wood product manufacturing industry operated at 60.6% capacity in the first quarter, down from 70.2% in the previous quarter. Reduced production in sawmills and wood preservation, partly a reflection of lower levels of construction activity, contributed to the lower rate.

On the other hand, capacity use rates increased in food manufacturing, beverage and tobacco product manufacturing, and petroleum and coal product manufacturing industries. Capacity use in the food manufacturing industry rose from 80.3% in the fourth quarter of 2008 to 81.3% in the first quarter of 2009. The gain was attributable mostly to an increase in output of fruit and vegetable preserving and specialty food manufacturing.

Non-Manufacturing
The capacity utilization rate in the oil and gas extraction sector rose 1.7 percentage points in the first quarter to 78.6%. This reversed a decline in the previous quarter as production of both crude petroleum and natural gas advanced.

In the mining sector,

excluding oil and gas extraction, capacity use fell sharply to 55.3% from 70.1% in the previous quarter. This was the result of large declines in output of potash, copper, nickel and iron ore mining, combined with a sharp drop in support activities for mining, and oil and gas extraction.

The construction sector operated at 71.8% of its capacity, a 3.5 percentage point drop from the previous quarter. Lower activities in residential building construction and engineering and repair work were behind the decrease.

Capacity use in the electric power generation, transmission and distribution sector slipped to 80.8%, the fifth consecutive quarterly decline. The rate in the forestry and logging sector fell 2.3 percentage points to 72.6%.

Source: Statistics Canada