December 13, 2010 / 1:42 PM / 7 years ago

Canada industry capacity use up more than foreseen

OTTAWA (Reuters) - Strong demand for vehicles and other manufactured goods allowed Canadian companies to use more industrial capacity than expected in the third quarter, suggesting they are learning to cope with the impact of a stronger domestic currency.

Capacity utilization rose a two-year high 78.1 percent, up for a fifth consecutive quarter and rising from 76.9 percent rate in the second quarter, Statistics Canada on Monday. The agency revised the estimate for the second quarter up from 76 percent.

The gain of 1.2 percentage points was smaller than in the previous three quarters but still exceeded a market forecast that industry would operate at just 76.5 percent of its potential output in the period. The rate peaked in the first quarter of 2007.

The manufacturing sector, battered by the strong Canadian dollar and weak demand in the U.S. market, drove most of the gains, Statscan said. The sector’s capacity use rate jumped to 81.2 percent from a revised 78.7 percent in the previous quarter.

The data helped push the Canadian dollar as high as C$1.0028 to the U.S. dollar, or 99.72 U.S. cents, on Monday morning, its highest point since December 7.

Capacity use at factories making transportation equipment, including cars, rose to 74.3 percent from 70.3 percent in the second quarter. Machinery makers ran at 85.4 percent capacity, the third-highest level on record.

Overall, 15 of 21 major manufacturing industries posted gains. In the non-manufacturing sector, only forestry and logging registered a significant gain, while other industries showed modest ups or downs.

“Today’s report underlines the fact that even under the conditions of a rather austere economic recovery in which growth rates are characterized at best as incremental, even restricted rates of GDP growth will continue to chip away at the output gap,” said HSBC Securities economist Stewart Hall in a note to clients.

“From a monetary policy standpoint, there is room to suggest that the output gap may be closing faster than the (Bank of Canada) estimated in its economic update from October.”

Other data on Monday showed the country’s net worth edged up 0.7 percent to C$6.3 trillion ($6.3 trillion) in the third quarter, while household net worth advanced 2.7 percent to C$6.1 trillion following a 0.5 decline in the second quarter, Statistics Canada reported.

Rallying stock markets helped make the gains in quarterly household net worth the strongest in a year.

“The increase pushes Canadians’ net worth above the pre-recession high seen in the second quarter of 2008, indicating that households have now fully recovered the cumulative C$552 billion of net worth that was lost during the economic downturn,” RBC Capital Markets economist David Onyett-Jeffries said in a note to clients.

The gains, however, were tempered by a spike in the ratio of consumer debt to disposable income to 148.1 percent, a record high, HSBC’s Hall said.

$1=$1.00 Canadian With files from Claire Sibonney in Toronto; editing by Peter Galloway

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