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Manufacturing GDP Analysis – March 2016

Mining, oil and gas sector drives the Canadian economy down in March

For the second consecutive month, the Canadian economy contracted in March, led by a sharp decline in resource extraction. Overall, GDP fell by 0.25 per cent in March, adding to the revised 0.14 per cent decline in February.

falls again in march

However, thanks to a strong January, Canada’s first quarter GDP numbers were reasonably solid. The economy grew by 0.5 per cent compared to the final quarter of 2015, which is slightly above-average growth compared to how Canada has performed over the past three years.  

Exports were the main driver of growth in Q1 2016, increasing by 1.7 per cent over the final quarter of 2015. Household spending was also solid despite soft employment numbers. The challenge is that business activity continues to be an anchor on the Canadian economy. Led by slashed capital spending in the energy sector, business investment fell for the fifth consecutive quarter and is now 9.4 per cent below levels seen at the end of 2014.

Business investment

Turning to the industry-level numbers for March, results were generally mixed with seven of the fifteen major economic sectors contracting and eight flat or rising. By far the largest decline was in mining and oil and gas extraction, where GDP was down by 2.8 per cent compared to February. A much larger decline will come in May when the impact of the Ft. McMurray forest fires begins to appear in economic data. Aside from resource extraction, GDP was also down in wholesale and retail trade (0.8 per cent), as well as transportation and warehousing (0.6 per cent), and agriculture, forestry, fishing and hunting (0.5 per cent).

By contrast, most of the gainers in March were in white-collar services industries. Finance, insurance and real estate was up 0.4 per cent, while professional, scientific and technical services were 0.3 per cent higher. There were also positive growth numbers in education and health care in March.  

growth by sector

For its part, manufacturing GDP fell slightly, posting a decrease of 0.2 per cent after a drop of 0.9 per cent in February. However, those declines followed a surge in economic activity in manufacturing at the end of 2015. As a result, manufacturing GDP remains well above last fall’s levels.

On top of that, the decline in manufacturing in March was heavily concentrated in motor vehicles production. Temporary closures for retooling auto plants contributed to a 2.9 per cent drop in GDP in that sector. Fabricated metals and paper production were also down, each seeing a 1.1 per cent decline in GDP in March. 

Manufacturing GDP by Major Industry    
  Feb-16 Mar-16 Feb-Mar Mar 2015 - Mar 2016
  ($billions) ($billions) % growth % growth
Total Manufacturing 175.2 174.8 -0.2 0.4
  Durables 101.0 100.1 -0.9 -1.5
  Non-durables 74.3 74.7 0.6 2.6
         
Major Industries        
  Food 23.6 23.7 0.5 2.4
  Motor vehicles and parts 18.7 18.2 -2.9 7.1
  Chemicals 14.2 14.2 0.5 1.3
  Primary metals 13.7 13.7 0.0 6.0
  Machinery 13.0 13.1 1.1 -11.5
  Fabricated metals 12.4 12.2 -1.0 -5.8
  Wood products 10.1 10.1 0.5 7.8
  Plastics and rubber prods. 9.7 9.7 0.4 4.2
  Paper products 7.8 7.7 -1.1 4.9
  Aerospace  6.9 6.8 -0.6 -7.0
  Petroleum and coal prods. 6.3 6.5 2.6 3.2

Meanwhile, there was good news elsewhere in manufacturing. Food processing continued its tremendous positive run with a 0.5 per cent increase in GDP in March. Higher oil prices also boosted the value of petroleum refining, and Canada’s struggling machinery manufacturers may be turning the corner after 15 months of almost continuous decline. 

food processing 

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