Study: The evolution of the Canadian manufacturing sector

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Between 1961 and 2005, growth in the volume of manufacturing output kept pace with growth in the volume of total gross domestic product (GDP).

Manufacturing adapted to long-term changes in the economic environment to maintain the importance of the volume of its output relative to output produced in other sectors.

In doing so, it showed considerable resilience in the face of diverse challenges stemming from demand shifts, relative price shifts or changes in tariff regimes. Between 1961 and 2005, productivity in the manufacturing sector increased by an annual average of 1.1%. Manufacturers moved to producing more durable goods and fewer non-durable goods in the face of increasing international competition and rising resource prices.

There is little evidence that manufacturing was in a long-run decline, when relative volumes are considered. Relative volume changes during this period were small but positive, averaging less than 0.1% a year.

On the other hand, the relative value of GDP originating in the manufacturing sector declined between 1962 and 2005. This occurred because the relative prices of manufacturers fell by an average of 0.9% a year.

Manufacturing's productivity growth was faster than in most other sectors of Canada's economy. Firms passed this productivity growth on in the form of lower price growth.

The Canadian manufacturing sector is sensitive to business cycle shocks in the United States. When manufacturing in the United States performed relatively well, manufacturing in Canada did well and vice versa. Business cycle fluctuations, therefore, have affected the speed of relative volume changes.

Trade liberalization also reshaped the Canadian manufacturing sector's opportunities in US export markets and the intensity of competition they experienced from foreign producers. The North America Free Trade Agreement (NAFTA) between Canada, Mexico and the United States was associated with restructuring, as the Canadian manufacturing sector reduced its emphasis on non-durable goods production and increased the proportion of output in durable goods.

The implementation of NAFTA and the adjustment that followed saw both the largest relative and absolute gains in manufacturing output during the 45-year period. As a consequence, manufacturing grew substantially between 1994 and 2001 as Canada adjusted to expanded trade opportunities.

In the years after the technology bubble collapse in 2001 and during the natural resource boom, the manufacturing sector resumed its positive growth, averaging 0.4% a year between 2002 and 2007. The compositional shift towards durable goods and away from non-durable goods continued after 2000. Volumes of durable goods generally increased over this period, while the production of non-durable goods declined.

Definitions, data sources and methods: survey numbers, including related surveys, 1401 and 1402.

The research paper "The Canadian manufacturing sector: Adapting to challenges" is now available as part of The Economic Analysis Research Paper Series (11F0027M2009057, free), from the Analytical studies module of our website.

For more information, or to enquire about the concepts, methods or data quality of this release, contact John Baldwin (613-951-8588) or Ryan Macdonald (613-951-5687), Economic Analysis Division.