What recession? Most economic sectors post modest gains in January

Never mind all the economic doom and gloom in the media, the Canadian economy is still chugging along with enough strength to ward off recession.

Gross domestic product rose 0.3% in January, the same pace as in December. Most sectors of the economy made gains in January, according to Statistics Canada. Wholesaling and retailing activity advanced; there were broad-based increases in the retail sector, while computers were chiefly responsible for the strength in wholesaling. Oil and gas exploration activity continued to buoy the mining sector. The construction industry was busy; housing starts increased to their highest level since 1994.

Strength in wholesale and retail trade, construction and increased activity in the oilpatch was partly offset by continued weakness in the manufacturing sector and lower demand for energy.

Further declines in the production of telecommunications equipment and automotive products held the reins on the manufacturing sector. However, a majority of the industry groups in the manufacturing sector reported gains in January after receding in December.

Manufacturing output edged down 0.1% in January, as weak demand for electronics and automotive products continued to plague this sector of the economy. There were also declines in the clothing, textile and plastic product industries. However, rising levels of production in the machinery, primary metal and chemical industries partly offset these declines. Overall, 15 of 22 major industry groups, accounting for 62.4% of total manufacturing production, raised output in January.

The gross domestic product (GDP) of an industry is the value added by labour and capital in transforming inputs purchased from other producers into outputs. Monthly GDP by industry is valued at 1992 prices. The estimates presented here are seasonally adjusted at annual rates.

Looking in closer detail at each industry, Statistics Canada reported:

Production of electrical and electronic equipment continued to sag in January, the second decline since October 2000. Production of telecommunications equipment fell 9.6% and output of electronic parts and components dropped 9.4%. Of the large electronic goods-producing industries, only producers of computers and peripherals managed to advance. Nevertheless, overall output of electrical and electronic products was 17.6% higher than in January 2000. During 2000, new orders continued to come in, albeit at a slower pace than previously, resulting in the lowest backlog of orders in many years.

Despite some strength in consumer demand from the United States, Canadian auto producers tapped the brakes again in January. Output of motor vehicles and auto parts curtailed production for the fifth consecutive month, by 2.3% and 1.9% respectively, as producers struggled to pare back excess inventories. Motor vehicle production was down 18.8% from January 2000, while parts production was 11.3% lower. Although no single parts manufacturing industry escaped cutbacks, makers of stampings, vehicle steering components and wheel assemblies fared the worst, while producers of plastic, fabric and other miscellaneous parts held up quite well.

Production of chemical products rose 1.6% in January, the sixth increase since April 2000. The industry was once again supported by the expansion of pharmaceuticals production, which saw a burst of growth in the latter half of 2000, resulting in a level of output about 25% higher than a year ago. Producers of synthetic resins and dyes, agricultural chemicals and cosmetic products also made sizeable gains.

Several industries that manufacture construction-related goods increased output in January. These included makers of concrete and ready-mix products, asphalt roofing materials and most wood products. Wood product producers also benefited from a strong export market, as building demand from the United States generally remained resilient. Primary steel production increased sharply, as output was hampered in December by plant shutdowns. The slowdown in auto production was one of the main factors behind the December slump.

All sectors of the construction industry reported greater activity in January, leading to a 1.0% increase in this industry. The largest gains were in home-building and industrial plant construction; work on engineering projects also advanced. A double-digit gain in housing starts in January still left residential construction activity short of its previous peak reached in March 2000, as the majority of the gains were attributable to lower-cost multiple housing units. Overall output was buttressed by favourable weather, after an unusually harsh December.

Wholesaling activity rose 1.7% in January, the fourth increase since August 2000. This followed a solid December increase of 1.8%. As in December, higher computer sales were mostly responsible for the healthy gain in output. After a string of declines, imports of these goods surged in December and January. Wholesaling of automotive products also rose from December levels, although activity remained roughly where it was at the beginning of 2000.

Retail sales advanced 1.1%, principally on rising motor vehicle dealer and department store sales. Auto dealerships were busier in January, a welcome change from the lacklustre traffic of the previous three months. However, sales of new and used vehicles as well as other services in January were still below the previous peak reached last September. New store openings helped lift department store sales to a new record level. Furniture and clothing stores also reported increased activity. The most significant drop was in grocery stores, which saw the first sizeable decline in eight months.

Mining activity rose 1.5% in January, as a rebound in the drilling and rigging industry and continued growth in crude petroleum and natural gas extraction pushed output higher. Production from metal and non-metal mines also advanced, owing to sharply higher extraction of uranium and a burst in salt mining. Salt mine producers ramped up production, as a harsh winter in the Great Lakes region increased road salt consumption to the point of wiping out the entire season’s inventories.