Manufacturing GDP Analysis – June 2016

 

Snapback from May not enough to avoid a negative spring quarter for the Canadian economy

The Canadian economy snapped back in June after the city-wide evacuation of Fort McMurray and the shutdown of oil production and refining operations caused national GDP to plunge May. June's 0.61 per cent increase in GDP was slightly larger than May's decline, allowing the economy to return to about April's levels.

Cdn economy impact May


However, the fact that May's losses were recovered in a single month does not mean that there was no lasting economic damage from the wildfires. In a sense, GDP can be likened to an individual's paycheque. If someone received only half their regular pay in one month but then things returned to normal the next month, growth numbers would show a huge decline in income, followed by an even larger increase. But this does not mean that the individual is now just as well off as before that experience; the fact remains that they still missed half a month's pay. The same is true of GDP; a recovery in growth should not be confused with a recovery in wealth.


The impact of the wildfires also resulted in negative growth numbers for the second quarter of 2016. The 0.4 per cent decrease was the first quarter of negative growth since a year ago when the Canadian economy dipped into a mild recession in the initial aftermath of the decline in oil prices. The decline in Q2 2016 was driven entirely by exports, where value-added activity fell by 4.5 per cent compared to the first quarter of the year.


Cdn economy contracts Q2


The good news for the Canadian economy is that energy sector output did not fully return to normal in June, meaning that the snapback in GDP was at least in part driven by healthy growth elsewhere. By far the largest increases in GDP in June were in resource extraction, manufacturing and utilities. However, extractive industries only recovered about two thirds of their losses in May, while petroleum refiners only regained one third. Meanwhile, there was modest but widespread growth across a wide range of services and other manufacturing industries. In fact, of the 15 major economic sectors in Canada, eleven were higher in June. Construction was the only sector to post a significant decline for the month.


GDP Growth by sector


June was a good month for manufacturing across Canada as well. On the whole, manufacturing GDP was up 1.8 per cent compared to May and nine of the eleven major manufacturing industries posted gains. While this growth was not enough to recover May's losses in manufacturing GDP, it is important to remember that many of the industries affected by the wildfires have only partially recovered. Petroleum refining, primary and fabricated metals output, and chemicals production were all higher in June, but were not yet operating at normal capacity.

 

Manufacturing GDP by Major Industry      
  May-16 Jun-16 May-June June 2015 - June 2016
  ($billions) ($billions) % growth % growth
Total Manufacturing 171.3 174.4 1.8 0.9
  Durables 97.5 99.9 2.4 0.2
  Non-durables 73.7 74.5 1.0 1.6
         
Major Industries        
  Food 23.5 23.1 -1.6 0.1
  Motor vehicles and parts 17.9 18.6 3.7 10.1
  Chemicals 14.5 14.7 1.3 2.9
  Primary metals 13.9 13.9 0.1 8.6
  Machinery 12.6 12.8 2.1 -7.2
  Fabricated metals 11.5 11.7 1.7 -7.2
  Wood products 9.9 10.2 2.7 10.2
  Plastics and rubber prods. 9.6 10.0 4.7 6.0
  Paper products 7.6 7.5 -1.1 0.6
  Aerospace 6.8 6.9 1.1 -3.6
  Petroleum and coal prods. 6.0 6.4 6.0 4.3


Adding to the partial recovery in those industries was solid growth elsewhere. GDP in plastics and rubber production jumped 4.7 per cent while auto sector GDP was up a healthy 3.7 per cent. In fact, only two industries posted notable declines in June - food processing and paper products manufacturing.

monthly GDP growth by sector

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