MNI DATA ANALYSIS: Canada 4Q Cap Util Rate Reaches 86%>

By Yali N'Diaye

     OTTAWA (MNI) - Canada industrial capacity utilization rate rose 0.9 

percentage points to 86.0% in the fourth quarter 2017, its highest level 

since the second quarter 2007, Statistics Canada reported Friday. 

     The data confirmed the Bank of Canada's assessment that the economy 

is operating close to capacity, with the question being to which extent 

the increase in investment in late 2017 has added to capacity, as a 

higher capital stock takes time to become productive. 

     Business investment rose 2.3% in the fourth quarter, when the 

country's annualized real GDP expanded 1.7%. Business investment 

increased in machinery and equipment (+3.0%) and non-residential 

structures (+1.3%). 

     --OIL, GAS, CONSTRUCTION 

     Oil and gas extraction and construction, which together have an 

important weight in the overall capacity utilization rate, were the main 

contributors, with Statistics Canada citing higher activity. 

     Over the quarter, GDP for industrial production rose 0.5%, the same 

pace as the third quarter, following a 1.9% gain in the second quarter 

of 2017. 

     Capacity use in oil and gas extraction rose to 83.0% from 81.5% the 

previous quarter. It rose to 91.0% in construction in the fourth quarter 

from 89.5% in the third quarter. 

     Despite higher capacity use, the Bank of Canada continues to stress 

that wage growth should be higher at this stage of the growth cycle. 

     "Despite strong employment gains and an economy operating close to 

capacity, wage growth has been slower than would be expected," Deputy 

Governor Timothy Lane said in a speech Thursday. 

     --HIGHER MANUFACTURING 

     In the manufacturing sector, the capacity utilization rate rose 0.7 

percentage points in the fourth quarter to 86.1%, the highest level 

since the fourth quarter 2000. 

     Durable manufacturing led the gain. 

     BOC Deputy Governor Timothy Lane warned in a speech Thursday that 

despite manufacturing gains in recent quarters, competitiveness 

challenges could translate into disappointing non-energy goods exports, 

limiting Canada's ability to benefit from global growth.  

     For 2017, Canada's average capacity utilization rate rose 4.4 

points to 84.6%, mainly due to oil and gas, and it was 85.2% in 

manufacturing, with 18 of 21 major manufacturing groups posting gains. 

     The BOC continues to monitor the evolution of economic capacity 

among the key indicators on its radar screen. 

     To that effect, the Business Outlook Survey will be particularly 

important to assess investment intentions amid ongoing NAFTA-related 

uncertainties. 

--MNI Ottawa Bureau; email: yndiaye@mni-news.com

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