MNI Analysis:Canada 3Q Capacity Utilization Reaches 10-Yr High>

By Yali N'Diaye

     OTTAWA (MNI) - Canadian industries operated at 85.0% of their 

capacity in the third quarter of this year, the highest rate since the 

third quarter of 2007, Statistics Canada reported Friday. 

     The 0.7 percentage point gain marked the fifth consecutive 

quarterly increase, leaving the capacity utilization rate above its 

long-term average of 83.0% for the second quarter in a row. 

     Manufacturing industries operated at 85.2% of their capacity during 

the quarter, up 0.1 percentage point from the second quarter, and the 

highest rate since the fourth quarter 2000. 

     The capacity utilization rate has now been above its long-term 

average of 81.2% for five consecutive quarters in the manufacturing 

sector. The utilization rate increased in nearly half of the industries. 

     The data were encouraging in terms of investment prospects and 

consistent with a strong economic performance in Canada, where the 

annualized GDP growth rate reached 3.7% in the first quarter, 4.3% in 

the second quarter, before slowing to a still decent 1.7% in the third 

quarter. 

     With economic slack slowly being absorbed, as underlined by the 

Bank of Canada, underlying inflation has been increasing. However, 

inflation still remains well below 2%. 

     The Bank of Canada expects 2017 real GDP growth to reach 3.1%, 

before slowing to 2.1% in 2018 and 1.5% in 2019. 

     "Economic activity is forecast to remain close to full capacity and 

at times possibly modestly above," it said in its October economic 

assessment, adding in its policy statement Wednesday that inflation and 

growth had evolved in line with October's projections. 

     Economic capacity is among the key variables the central bank is 

looking at to determine its next move. 

     Friday's capacity utilization report showed the increase was led by 

construction, where the rate rose to 89.1% from 87.6%, as well as 

electric generation, transmission and distribution, which, at 88.9%, 

reached its highest level since the fourth quarter of 2008. 

     Investment in new construction rose 1.7% in the third quarter, 

according to recent GDP data. 

     Meanwhile, oil and gas extraction was down 2.7 percentage points to 

81.5%, with the agency citing lower conventional oil extraction volumes. 

     Within manufacturing, the capacity utilization rate for machinery 

continued to increase, reaching a record 91.3%, a positive sign for 

investment activity. 

     During the quarter, investment in machinery and equipment rose 

1.5%, with a 5.5% increase in spending on industrial machinery, the 

recent third quarter GDP data showed. 

     Transportation equipment, on the other hand, fell to 83.0% from 

86.6% due to lower auto production. 

     --MNI Ottawa Bureau; email: yali.ndiaye@marketnews.com 

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