Manufacturing GDP Analysis – November 2016

 

Manufacturing rebound pushes GDP higher in November

The Canadian economy rebounded smartly in November after a poor showing the previous month. In October, combined weakness in energy and manufacturing drove GDP down by (a revised) 0.21 per cent. However, manufacturing activity snapped back a month later and helped the economy to regain October's losses and then some. Overall, GDP rose by 0.40 per cent in November, equivalent to an annualized increase of close to 4.8 per cent.

gdp rebounding in November

With gains in five of the last six months - not to mention excellent jobs and trade numbers last month - the Canadian economy finally looks like it might be turning the corner after two consecutive years of lethargy. It is too late, of course, to prevent 2016 from being a poor year on the whole - through 11 months, GDP is on pace for about 1.1 per cent growth - but momentum is building. For one, that 1.1 per cent growth rate looks a lot better than the 0.8 per cent pace we were talking about in October. Second, recent gains will ensure that the economy gets off to a relatively hot start once 2017 numbers start rolling in.

momentum building in the Cdn economy

At the industry level, all the excitement in November was concentrated in the goods sector, while service-sector industries were either flat or slightly higher. All told, GDP in goods production rose by 0.9 per cent, while services sector GDP was just 0.2 per cent higher.

Within the goods sector, however, the story was far from consistent. On the up side, three goods-producing industries drove most Canada's GDP gains in November: manufacturing (up 1.4 per cent); mining and energy extraction (1.4 per cent); and construction (1.1 per cent). On the down side, GDP in utilities fell sharply (by 3.0 per cent), while there was a smaller decline (-0.3 per cent) in agriculture and renewable resources.

Gross-producers drive GDP

Turning to the manufacturing sector itself, the rebound from October's decline was relatively evenly distributed between durable and non-durable goods production. The former grew by 1.3 per cent in November, while the latter posted a gain a 1.5 per cent. At the industry level, machinery production led the way, recording a 3.6 per cent increase and offsetting a comparable decline in October. Machinery producers endured an exceptionally difficult 18 months beginning at the end of 2014, but appear to be on the road to recovery. GDP in chemical production also grew by 3.6 per cent in November. Unlike machinery, however, this increase has been par for the course for chemicals producers. Through 11 months, GDP in that industry is on pace to grow by 5.2 per cent for 2016.

Most remaining gains in manufacturing were concentrated in industries tied to resource extraction. Primary metals (3.2 per cent), petroleum refining (3.0 per cent), and wood products (2.4 per cent) were all up strongly in November.

 

Manufacturing GDP by Major Industry      
  Oct-16 Nov-16 Oct-Nov Nov 2015-Nov 2016
  ($billions) ($billions) % growth % growth
Total Manufacturing 172.2 174.7 1.4 0.6
  Durables 98.4 99.7 1.3 -2.0
  Non-durables 73.8 75.0 1.5 3.6
         
Major Industries        
  Food 24.1 24.4 1.3 5.9
  Motor vehicles and parts 17.5 17.4 -0.1 -4.8
  Chemicals 14.7 15.3 3.6 10.0
  Primary metals 13.5 14.0 3.2 2.7
  Machinery 13.2 13.6 3.6 2.4
  Fabricated metals 12.2 12.0 -1.6 -11.5
  Wood products 10.3 10.5 2.4 5.1
  Plastics and rubber prods. 9.7 9.9 1.3 3.5
  Paper products 7.3 7.1 -2.3 -3.9
  Aerospace 6.5 6.5 -0.2 -5.3
  Petroleum and coal prods. 5.9 6.0 3.0 0.0


While there were small declines in aerospace and auto production, only two leading manufacturing industries recorded notable losses in November. Paper products GDP was down 2.3 per cent, while fabricated metals production was 1.6 per cent lower. The decline in fabricated metals is particularly worrying as the industry has struggled mightily since the decline in crude oil prices in late 2014. Over the last 24 months, GDP in fabricated metals production has fallen by more than 15 per cent.

machinery production recovering

Nevertheless, the manufacturing sector in general is poised for modest growth in 2016. Through 11 months, GDP is 0.5 per cent higher than it was over the same period in 2015. Stability in oil prices and a recovery in energy sector investment should help 2017 be a stronger year for Canadian manufacturing.

 

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