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The Daily

Thursday, May 22, 2008

Output slumped again in February, after recovering in January from a steep decline in December. Several factors have contributed to the recent weakness in real gross domestic product (GDP). The new Family Day holiday in Ontario shortened work hours in February for many firms. Weather also has been erratic, with record snow this winter in much of Eastern Canada and the coldest weather in years in Western Canada. Meanwhile, the US economy remained sluggish in the first quarter, as the worsening state of its housing market offset higher exports.

But mostly, growth in Canada has been restrained by large drops in auto assemblies. The recent volatility of auto production in Canada is in marked contrast with the United States. Auto output in Canada tumbled 23% in December, about two-thirds due to model changeovers and one-third to weaker sales in the United States. Output rebounded in both January and February, but remained 14% below its November level. Meanwhile, output in the US dipped only 5% over the same period. The strike at a US parts manufacturer further disrupted auto production on both sides of the border in March, and continued into April.

It is unclear at the moment whether the economy is in a cyclical slowdown like in 2001 that will last several months, or is traversing an extended period when irregular events depress output, as occurred in 2003. At that time, a series of mishaps, ranging from the outbreak of severe acute respiratory syndrome (SARS), mad cow disease and the Iraq war, as well as the electricity blackout in Ontario and bad weather, kept real GDP growth below 1% for the year ending in August 2003. Once these events passed, however, growth quickly resumed, rising 1.8% for all of 2003.

Comparing the pattern of GDP recently with 2001 and 2003 sheds little light on which course the economy has taken. One encouraging sign is that employment growth continued. However, job growth itself does not always distinguish between cyclical slowdowns and irregular events: employment stalled in mid-2003, but rose slowly in 2001. Still, cyclical slowdowns are not usually associated with the ongoing strength seen in commodity and stock markets and strong sales of autos and housing in Canada. The leading indicator remains neutral about the direction the economy is taking.

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

The print version of the May 2008 issue of Canadian Economic Observer, Vol. 21, no. 5 (11-010-XPB, $25/$243), is now available.

This issue summarizes the major economic events that occurred in April and presents an article entitled "From lagging to leading: Newfoundland and Saskatchewan dig into the resource boom."

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