Industrial Capacity Utilization at only 77.4% in 2008's Third Quarter
Statistics Canada has just published capacity utilization rates for Canadian industry and the figures are not pretty. A number of sub-sectors have hit all-time lows. Furthermore, the latest results are for the third quarter of this year, before the sharp declines in business activity levels and confidence tied to the end-of-September collapse in stock prices.

Fourth quarter results will show even more dramatic drops in plant usage. The lower-valued Canadian dollar will not be able to mitigate product demand declines due to the world economic slowdown, the U.S. consumer spending retreat and increasing nervousness about future prospects in Canada.

Total Canadian industry operated at only 77.4% of capacity in third-quarter 2008. This was the lowest level since Statcan started to keep records in 1987. The performances in some of the sub-sectors were as follows. Forestry and logging was no surprise, recording a utilization rate of only 70.4%. This was due to U.S. home starts being stuck at an exceptionally low level and demand for Canadian lumber consequently disappearing.

Electric power utilization (83.9%) has stayed relatively strong. Electricity generating capacity is lower than it should be. Expansions are needed and planned across the country. Construction's low utilization rate (75.9%) is a bit of a shock, given that year-over-year employment growth (+9.8%) has remained at nearly double digits. Statistics Canada attributes construction's low utilization rate to capacity expansions. Problems loom for portions of this sector, as housing starts in November plunged.

Only Eight Sub-sectors in Manufacturing are above 80.0%
In manufacturing (78.0% of capacity), the greatest signs of weakness were in the most obvious areas. In the latest quarter, the utilization rate for transportation equipment fell to 71.1%. This was due to the depressed U.S. auto sector, where consumers have drastically cut back car purchases. A good proportion of those cars are made in Canada. Motor vehicle weakness also shows up in plastics (only 63.0% of capacity) and rubber products (77.1%). The combined rubber and plastics category (65.3%) was at an all-time low.

Only eight sub-sectors in manufacturing had utilization rates above 80%. (Note: 85% is the benchmark figure in terms of signaling a need for facility expansions.) Those eight industries were: (1) food manufacturing (80.5%) — everybody's got to eat; (2) textile product mills (80.2%) — a carryover from many years of strong housing starts; (3) paper manufacturing (87.8%) — due to capacity declines as assets have been depreciating faster than any new investments; (4) chemical manufacturing (80.8%) — thanks to healthy (or maybe more accurately unhealthy) pharmaceutical and medical demands.

Continuing with the eight manufacturing sub-sectors operating above 80% of capacity, there were: (5) primary metal manufacturing (96.1%, its highest level since 1988) — due to foreign demand for iron and steel products; (6) computer and electronic products (89.5%) — price declines have helped to keep demand high; (7) non-metallic mineral products (82.2%) — further confirmation of an active construction scene in the country; and (8) machinery manufacturing (88.0%) — where world-wide agricultural demand earlier this year placed a heavy demand on equipment.