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Economy grows in May; transportation and warehousing slip again


Economic activity edged up in May, as gross domestic product (GDP) increased 0.1% after a setback in April, Statistics Canada reports.

Transportation and warehousing, however, continued to have a tough time. GDP in this sector declined 1.3% for the month, its fourth straight monthly decline.

The economy gained strength from sharply higher sales of motor vehicles, which propelled the retailing and wholesaling sectors. Industrial production (manufacturing, mining and utilities), however, fell a further 0.3%, the fourth decrease in as many months, as all components registered a decline in May.

Substantial reductions in the production of food, paper, wood and fabricated metal products were responsible for the bulk of the weakness in the manufacturing sector.

Manufacturers reduced production levels for the second consecutive month, resulting in the lowest output levels since March 2002. Manufacturers of exported goods faced lower demand as a result of price increases from a significantly stronger Canadian dollar. Substantial reductions in the production of food, paper, wood and fabricated metal products were responsible for the bulk of the weakness in the manufacturing sector.

Food manufacturers were adversely affected by the revelation on May 20 that an Alberta cow died of bovine spongiform encephalopathy (BSE, or mad cow disease) which closed most of the international export market for Canadian beef. Many farmers held back their slaughter cattle, thereby reducing production levels at meat-packing plants. Production levels in the animal slaughtering industry were curtailed a significant 9.3%, while the rendering and meat processing industry cut back production levels 7.9%. Exports of meat and meat preparations fell 20% in May.

Wood and pulp and paper product manufacturers curtailed production in response to a stronger Canadian dollar, which increased almost 5% against the US dollar in May. High tariff rates coupled with a strong Canadian dollar made it almost impossible for sawmill producers to earn a reasonable rate of return. Fabricated metal products producers trimmed production back 1.7% as a result of lower demand from transportation equipment parts manufacturers.

Transportation equipment manufacturers scaled back production slightly, as increased production of cars and trucks was not enough to offset the larger drop in the motor vehicle parts industry. Lower motor vehicle production in the United States translated into reduced manufacturing of motor vehicle parts in Canada.

There is good news for manufacturing, however. Comparable US statistics on industrial production showed a 0.1% increase in May, after two consecutive substantial monthly declines. The uptick in US manufacturing may be the boost that Canadian industry needs to get going.