Economy makes up ground lost since September plunge

Gross domestic product (GDP) rose 0.2% in December, the third consecutive monthly advance since the plunge in September, Statistics Canada indicates.

With this increase, the economy has regained all the ground it lost in September, and in December was 0.2% higher than it was in August.

As in the previous two months, strong motor vehicle sales lifted up the retail industry and provided the single largest push to the economy, Statistics Canada notes in its Daily Bulletin. Economic expansion was largely restrained by the continued downward slide in manufacturing and weakness in the mining and energy sector.

Retail activity was up 1.7% in December, helped by a 3.9 increase in car sales. Furniture retailers also saw higher sales in December as they continued to benefit from increased new home construction and record home resales. Increased consumer traffic made for strong gains in department stores as well. Most of the other retail sectors posted much weaker gains.

Wholesaling activity advanced for the third consecutive month, rising 0.8% in December. Increased wholesaling of motor vehicles and parts was largely responsible for this advance. Wholesaling of machinery, clothing, food and beverages also made gains. These gains were partly offset by lower wholesaling of electrical and computer equipment.

The downward slide in the manufacturing sector, however, continued. Manufacturing output fell 0.8% in December, the sixth decrease in seven months; 13 of 21 sectors registered declines.

Producers of paper, wood, chemical and fabricated metal products were chiefly responsible for the weakness in December. There was strength in transportation equipment, thanks to higher production of motor vehicle parts and aircraft. Production of ICT equipment and components was down slightly and not a major contributor to manufacturing weakness, as it had been over most of the past 15 months.

Paper production in December reached its lowest since October 1998. A weak world market accentuated an oversupply of paper, forcing several plants into unusually long shutdowns. Although the weakness was general in this sector, the newsprint industry was the hardest hit, declining 9.7%.

Manufacturing of wood products declined for a third consecutive month in December (-2.0%) to its lowest level since July 1998. The sawmill and wood preservation sub-sector was the main contributor to the weakness, while veneer and plywood mills also saw sharp declines. Trade uncertainty in softwood lumber continued past mid-December, when the anti-dumping duties on exports to the United States were dropped.

Chemical products declined 1.2% in December. The strongest drop occurred in the resin, synthetic rubber and fibre production as manufacturers responded to weak demand in automotive related products with layoffs and shutdowns. On a positive note, the continued strength in pharmaceutical products (up 3.1% in December) partly offset these declines.

Longer-than-usual shutdowns by manufacturers of boilers, tanks and shipping containers pushed down the fabricated metal production sector in December; it declined for the third month in a row.

Mining output lost a further 1.8% in December, as lower oil and gas prices continued to discourage exploration activity. Drilling and rigging services output fell 8.0%, the sixth decline in eight months. Production of crude oil rose as new capacity came on line, but natural gas producers curtailed output. Lower output of diamonds and potash reduced non-metallic mineral output. Coal production dropped a significant 10.8%.