Canadian industries operated at 78.4% of their production capacity in the second quarter, down from 78.9% in the previous quarter. The decline followed seven consecutive quarterly increases in capacity utilization.
Declines in manufacturing industries, particularly transportation equipment, were behind the second quarter drop. Capacity use fell in 15 of the 21 major manufacturing industries.
Manufacturing: Transportation equipment biggest contributor to reduction in capacity use
Capacity use in manufacturing declined from 79.6% to 78.8% during the second quarter, following a 2.8 percentage point increase the previous quarter. However, the second quarter rate remained higher than any rates recorded in 2008, 2009 and 2010.
The transportation equipment industry was by far the biggest contributor to the reduction in capacity use in manufacturing. Other significant contributors to the decline were manufacturers of beverage and tobacco products, chemicals, and non-metallic mineral products.
Capacity use increased in machinery, food, primary metals, computer and electronic products, and furniture and related products, while it remained unchanged in textile product mills.
In the transportation equipment industry, capacity use fell 4.5 percentage points to 79.6%, following a 4.1 percentage point increase the previous quarter. The second quarter rate was still much higher than the annual rates of 2008 and 2009, and remained above the 2010 annual level. Lower sales in the second quarter were offset by a boost in inventory levels, thus limiting the decline in the use of productive capacity.
The decrease in the transportation equipment industry was mainly explained by a decline in motor vehicles and parts manufacturing, resulting from supply chain disruptions following the tsunami in Japan in March. Motor vehicles and parts manufacturers sharply reduced production in April, followed by a slight decrease in May. Production started recovering in June but remained well below March levels.
In the beverage and tobacco products industry, capacity use declined 4.9 percentage points to 67.0%, following a 4.2 percentage point gain the previous quarter. Production at distilleries declined sharply, while output also fell at breweries and soft drink and ice manufacturers.
In the chemical industry, capacity use eased from 77.1% to 75.9%. This decline was mainly a result of reduced production of pharmaceuticals and medicine, which fell for the fifth quarter in a row. Lower production of basic chemicals also played a role in the decline in capacity use in the chemical industry.
In the non-metallic mineral products industry, capacity use fell from 78.3% to 76.6%. Lower cement and concrete production accounted for the decline.
Manufacturers of machinery boosted their capacity utilization rate from 83.0% to 86.0% as a result of higher production of mining and oil and gas machinery, and other general purpose machinery. This corresponds with higher exports of industrial and agricultural machinery in the second quarter.
Non-manufacturing: Mixed performance
In forestry and logging, capacity use fell sharply from 96.4% to 89.3%. Second quarter production fell sharply despite an increase in constant-dollar exports of forestry products.
The oil and gas extraction industry cut back the use of its productive capacity from 85.3% to 83.1%, as production of both crude petroleum and natural gas decreased. Alberta wildfires and maintenance shutdowns of refineries negatively affected petroleum production. Exports of crude petroleum fell, while natural gas exports rose slightly.
Capacity use in mining rose from 71.0% to 72.0%, mainly a result of higher production in support activities for mining and oil and gas extraction.
In the construction industry, capacity use rose from 76.1% to 76.8%, primarily a result of an increase in residential construction. Output also advanced in engineering and other construction, while production in non-residential building construction fell.
In the electric power generation, transmission and distribution industry, capacity use increased 0.3 percentage point to 77.7%.