Current economic conditions

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Output growth quickened in February, leaving it well-positioned for a solid first-quarter increase. The strong growth of the economy in the first quarter is noteworthy for several reasons. It suggests that much of the slump in output recorded last September and October was an isolated event, and not the beginning of a cyclical slowdown. This was reflected in the steady gains in the leading indicator and employment throughout the fall of 2006, which continued in the first quarter.

The buoyancy of output also shows the resiliency of the Canadian economy in the face of a rail strike and slowdown in US growth. US demand was hindered by continued weakness in housing, although this slump has not spilled over into sectors such as consumer spending and business investment.

Manufacturing output eked out a small increase, despite being hampered by the rail strike. This was its third increase in four months. More encouragingly, the balance of opinion about production in the second-quarter business conditions survey was more positive than it has been in almost three years. Autos rebounded from sharp declines in January, with assemblies up slightly year-over-year, a marked change from the 25% drop last October. A fire at a refinery in Ontario curtailed petroleum production.

The cold snap appears to have had more of an impact on the distribution than on the overall level of output. While demand for utilities hit a record high, the cold dampened work outdoors in the construction and resource industries. It also appears to have discouraged consumers from venturing out, especially to buy autos. The coldest winter in 25 years in the US exaggerated the slump in housing, which began to improve as temperatures recovered.

Regionally, Alberta returned to the lead in employment growth after pausing in March, driven by natural resources and trade and transportation. More part-time jobs may have encouraged women to enter the labour force. Employment posted a rare across-the-board increase in the Atlantic provinces, whose unemployment rate equalled the record low of 8.9% set in February (with Newfoundland and Labrador and Prince Edward Island hitting their lowest levels in a quarter of a century).

Definitions, data sources and methods: survey numbers, including related surveys, 1301, 1901, 2152, 2306, 2406 and 3701.

The print version of the May 2007 issue of Canadian Economic Observer, Vol. 20, no. 5 (11-010-XPB, $25/$243) is now available. This issue summarizes the major economic events that occurred in May and presents an article entitled "Canada's changing auto industry."

For more information, or to enquire about the concepts, methods or data quality of this release, contact Philip Cross (613-951-9162; ceo@statcan.gc.ca), Current Economic Analysis Group.