Manufacturing production increases in three consecutive quarters

Another sign that the economy is likely turning around: Canadian industries are operating at a higher production capacity, and manufacturing is leading the pack.

According to Statistics Canada’s recent survey of capacity utilization rates, Canadian industries operated at 74.2 percent of their production capacity in the first quarter of 2010, up from 71.3 percent in the fourth quarter of 2009 — resulting in the third consecutive quarterly increase. The industrial capacity utilization rate is the ratio of an industry’s actual output to its estimated potential output. The actual output measurment considers the real gross domestic product at factor cost, seasonally adjusted, by industry.

Prior to these gains, capacity use had been on a downward trend since the first quarter of 2007, when the rate was 83.1 percent. Increases of 2.7 percentage points in the fourth quarter of 2009 and 2.9 percentage points in the first quarter of 2010 were the largest quarterly gains on record.

The strength recorded by the overall Canadian industries was mainly driven by the manufacturing industry, where the utilization rate rose from 70.7 percent to 75.0 percent. Growth of capacity use in manufacturing was widespread, with 20 of the 21 major manufacturing industries advancing. Capacity use in total manufacturing increased by 4.3 percentage points in the first quarter of 2010 to 75.0%, following gains of 3.0 and 2.2 percentage points in the fourth and third quarters of 2009, respectively.

Overall, four industries were major contributors to the higher rate for total manufacturing: transportation equipment, primary metal, chemical, and machinery manufacturing.

The transportation equipment industry operated at 63.6 percent capacity in the first quarter of 2010, compared with 60.0 percent in the previous quarter. This was 16.3 percentage points higher than the first quarter of 2009, when the industry’s capacity use hit the lowest level on record. Manufacturers of motor vehicles and motor vehicle parts continued to increase production in response to sustained demand for automotive products in both Canada and the United States.

In the primary metal manufacturing industry, the utilization rate rose 9.5 percentage points in the first quarter of 2010 to 86.4 percent, following another 9.5 percentage point increase in the fourth quarter of 2009. Production of primary metals was up 8.8 percent, the result of increased iron and steel mills and ferro-alloy production, and alumina and aluminum production and processing.

Capacity use in the chemical manufacturing industry grew from 76.7 percent to 82.1 percent, continuing an upward trend that started in the third quarter of 2009. Higher production by pharmaceutical and medicine manufacturers and by petrochemical manufacturers led to a 4.2% production gain in the industry.

Machinery manufacturers used 71.6 percent of their production capacity, up from 64.8 percent in the previous quarter. The main contributing factor was a large increase in the production by metalworking machinery manufacturers, and by construction, mining and oil and gas machinery manufacturers.