Canadian Capacity Utilization at Lowest Level in 15 Years

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June 11, 2008

Canadian Capacity Utilization at Lowest Level in 15 Years

Source: Statistics Canada

Canadian industries significantly reduced their use of production capacity in the first quarter, pushing the rate to its lowest level in 15 years. Most of the sectors that make up the industrial group, particularly the automotive sector, contributed to the decline. Only the oil and gas extraction sector posted an increase in capacity utilization.

In the first quarter, industries operated at 79.8% of their capacity compared with 81.8% in the fourth quarter of 2007. The current rate is 7.3 points below the peak of 87.1% reached in the fourth quarter of 2000.

The industrial capacity utilization rate is the ratio of an industry's actual output to its estimated potential output. For this release, the rates have been revised back to the first quarter of 2006 to reflect the revised source data.

Manufacturing Capacity Declines

In the manufacturing sector, every major group except for leather products posted a reduction in capacity use. The rate fell from 80.3% to 77.2% in the first quarter and, for the first time since 2001, fell below the 80% mark. The biggest contributors to the rate's decline were the transportation equipment industries; wood products; plastics and rubber products; and non-metallic mineral products manufacturing industries.

In the transportation equipment manufacturing industry, the rate fell from 83.2% to 77.2%. Automotive products manufacturers, who were affected by plant closures because of retooling and a strike by a US auto parts supplier, played a large part in the 6.2% decline in production and in the drop in the rate during the first quarter.

Wood products manufacturers continued to experience difficulties in the first quarter. Production fell 7.6% because of the weak residential construction market in the U.S., and the capacity use rate settled at 64.8%, down from 70.8% in the fourth quarter of 2007. This was the lowest level in 17 years.

Plastic and rubber products manufacturers saw their rate fall from 72.7% to 68.0%. Auto production cutbacks had a negative impact on the manufacturing of plastic products for motor vehicles. The production of plastic and rubber products declined 4.2%.

The rate for manufacturers of non-metallic mineral products declined 6.7 points to 72.2%. The dip in production of cement and glass products used in construction was at the root of the 5.9% reduction in the production of non-metallic mineral products.

Weaker demand also had an impact on heavily export-oriented industries such as chemical products, fabricated metal products and machinery manufacturers. Consequently, these industries reduced their capacity utilization in the first quarter.

Other Sectors

In the forestry and logging sector, capacity utilization fell 2.8 points to 77.0%. Weak demand for wood products was at the root of a 5.2% drop in production in this sector.

In the mining sector, the rate fell from 77.5% in the fourth quarter to 75.8% in the first quarter. The decline in output of non-metallic mines was a significant factor in the 1.6% drop in production in this sector.

In the electrical power sector, capacity use leveled off at 86.8%, down 1.4 points from the fourth quarter. Production in the electrical power sector fell 1.0% from January to March.

In the construction sector, the weak increase in production was unable to offset the growth in production capacity, and the rate slipped from 84.9% to 84.0%.

Only the oil and gas extraction sector posted an increase in capacity use from 80.9% to 81.7%. This was attributed to an increase in crude oil production, given that natural gas production fell in the first quarter.

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