Latest Capacity Utilization Rate at Lowest Level in 10 Years
Alex Carrick
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Seed Newsvine |
Canada’s Total Industry Operated at 81.8% of Capacity in Q4 07
According to recently released data by Statistics Canada, total industry in Canada operated at a capacity utilization rate of only 81.8% in fourth-quarter 2007. This was the lowest utilization rate in ten years. The major reason for the weakness was a manufacturing sector that was shackled by the weight of a too-highly-valued Canadian dollar.
The highest utilization rate for total industry in Canada in this decade was 87.1% achieved in the fourth quarter of 2000, just before the downturn brought on by the dot.com collapse. (By the way, total industry in the U.S. operated at 80.9% of capacity in February 2008. The Federal Reserve in the U.S. calculates numbers on a monthly basis, whereas Statcan only makes the numbers available on a quarterly basis in Canada.)
Electric Power at 88.3% Leads among Major Sub-sectors
Among major sub-sectors, the utilization rate in oil and gas extraction dropped to 80.2% in the latest quarter. The huge investments in the Alberta Tar Sands have raised capacity. The electric power utilization rate is second highest among all sectors, at 88.3%. Winter started early in many parts of the country. However, this is also a warning that mega expansion plans need to be initiated fairly quickly if blackouts are to be avoided long term. New power generation has a long lead time between planning and “juice”.
Construction, thanks to continuing strong housing markets and a pickup in non-residential building work, is operating above 85% of capacity. Forestry and logging (79.6%) is hurting due to reduced sales brought on by Canadian dollar strength and the collapse in U.S. housing markets. However, the biggest problem was a manufacturing sector (80.5%) that barely registered a utilization rate above 80%.
Manufacturing was the Weakest Link Within manufacturing, 18 of 21 industrial groupings saw lower capacity utilization rates in the latest quarter versus the previous quarter. Further verifying problems in this sector was the 5% decline in year-over-year employment in the latest month. (South of the border, where the manufacturing utilization rate was 79.3% in February, the picture is not really any brighter.)
One of the largest declines in plant usage occurred in the transportation sector. There were auto plant closures at the end of last year for retoolings and inventory adjustments. On an encouraging note, auto sales roared out of the gate in early 2008. Passenger car sales in January were 16% ahead of December, thanks to price discounts, lower interest rates and the Goods and Services Tax (GST) cut.
Capacity Reductions have had an Impact (especially in Forestry)
Reductions in capacity through plant closings have had an impact in some industrial areas, most notably in the forestry sector. Included here are logging operations, sawmills, the manufacture of wood products and papermaking (especially newsprint). Some plant closings have also impacted on plastic parts production for motor vehicles.
In some other key sectors, the rise in value of the Canadian dollar has had a significant detrimental effect. For example, it has reduced international demand for this nation’s machinery and electrical equipment. It has also cut into domestic textile and clothing production, which has to contend with low-cost foreign (mainly offshore) goods. On the other hand, world-wide demand (and pricing) for steel and aluminum is so strong that Canada’s primary metals sector is stretching capacity at 91.4%, the highest level among all the industrial categories.
