Manufacturing sees largest decline of industrial capacity use; 3 sectors rise

Canadian industries continued to reduce their rate of capacity utilization in the first quarter of 2009, operating at 69.3 percent of production capacity, down 5.6 percentage points from the previous quarter, according to Statistics Canada. (See table by industry sector.) It was the first time that industrial capacity use fell below 70 percent since the start of the data series in 1987.

In the first quarter, durable goods industries, especially the transportation equipment industry, the construction sector and the mining sector (excluding oil and gas extraction), were the main contributors to the overall decline.

On the bright side – and there is one – capacity use rates increased in three sectors: food manufacturing, beverage and tobacco product manufacturing, and petroleum and coal product manufacturing. Capacity use in the food manufacturing industry rose from 80.3 percent in the fourth quarter of 2008 to 81.3 percent in the first quarter of 2009. The gain was attributable mostly to an increase in output of fruit and vegetable preserving and specialty food manufacturing.

However, weakened global and domestic demand for manufactured goods overall continued to drive down capacity utilization rates. Of the 21 major industries in the manufacturing group, 18 registered lower rates.

As it did in the fourth quarter of 2008, the transportation equipment industry led the first quarter decline in the manufacturing group. Capacity use in this industry fell from 58.3 percent in the fourth quarter to 42.5 percent in the first quarter of 2009.

Manufacturers lowered their use of production capacity in the first quarter to 65.9 percent, down 7.8 percentage points from the fourth quarter of 2008. This was the largest quarterly decline on record for the entire manufacturing sector.

Durable goods industries recorded significant decreases in the use of capacity. Transportation equipment, primary metals, fabricated metal product, machinery and wood product manufacturing industries accounted for most of the decline in capacity use.

Capacity utilization in the transportation equipment industry fell 15.8 percentage points from the fourth quarter and 35.0 percentage points from the first quarter of 2008, as manufacturers of motor vehicles and associated parts sharply cut back their production to levels approaching the second quarter of 1994. Numerous plants reported extended closures and slowdowns in January in reaction to lower demand in Canada and the United States.

In the primary metal manufacturing industry, capacity utilization decreased by 10.1 percentage points to 74.9%. This reflected a large decline in production of iron and steel mills and ferro-alloy manufacturing, and in foundries.

The utilization rate in the fabricated metal product manufacturing industry declined from 77.2% in the fourth quarter of 2008 to 70.5% in the first quarter of 2009. The major contributor was lower production in architectural and structural metals manufacturing.

Capacity use in the machinery manufacturing industry fell 6.4 percentage points to 75.6 percent. The drop was due largely to declining output in construction machinery, mining machinery and metalworking machinery manufacturing, in line with the reduced needs of the using industries.

The wood product manufacturing industry operated at 60.6% capacity in the first quarter, down from 70.2% in the previous quarter. Reduced production in sawmills and wood preservation, partly a reflection of lower levels of construction activity, contributed to the lower rate.