Economic Insights
Real Growth of Canadian Manufacturing Since 2000

by Sean Clarke and Lydia Couture
Analytical Studies Branch and Economic Analysis Division, Statistics Canada

Release date: June 27, 2017

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This Economic Insights article reports on changes in the Canadian manufacturing sector since 2000. Using data from the Canadian System of National Accounts and the U.S. Bureau of Economic Analysis, it provides an analysis of recent trends in Canadian manufacturing sector output, as well as a decomposition of the contribution of manufacturing industries to the evolution of the sector and a comparison with the United States.

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Overview

Over much of the post‑1961 period, real gross domestic product (GDP) in the Canadian manufacturing sector grew at essentially the same rate as real GDP in the business sector (Baldwin and Macdonald 2009). This article finds that this changed during the post‑2000 period: manufacturing experienced markedly slower growth and declined in real terms relative to the overall business sector.

In Canada, as in many other advanced economies, the share of manufacturing in current dollar GDP has declined over the last 30 years. A number of explanations for the decline have been proposed, including increased global competition, outsourcing of manufacturing activities to emerging economies, the rapid rise of the service economy (Nickell, Redding and Swaffield 2008) and slower price growth in manufacturing than in the overall business sector (Baldwin and Macdonald 2009). The latter paper showed that the nominal share of manufacturing in the Canadian economy declined as relatively stronger productivity growth in manufacturing led to relatively weaker price growth. This was the result of competition and innovation, both of which the authors took to be signs of a healthy manufacturing sector. While the decline was present only in nominal terms in their study, more recent data suggest that real manufacturing growth did not keep pace with real business sector growth (Chart 1).

Chart 1 Real gross domestic product, business sector and manufacturing, chained Fisher quantity index of GDP at basic prices, 1961 to 2016

Data table for Chart 1
Data table for Chart 1
Table summary
This table displays the results of Data table for Chart 1. The information is grouped by Year (appearing as row headers), Business sector and Manufacturing, calculated using index 1961=100 units of measure (appearing as column headers).
Year Business sector Manufacturing
index 1961=100
1961 100.00 100.00
1962 107.70 112.79
1963 113.92 120.24
1964 122.26 131.92
1965 130.78 143.88
1966 139.60 153.47
1967 142.77 156.32
1968 150.92 166.37
1969 158.67 177.11
1970 163.45 172.73
1971 170.11 182.83
1972 180.21 197.88
1973 193.28 215.59
1974 199.77 222.93
1975 202.41 209.15
1976 215.87 226.37
1977 225.28 235.04
1978 235.49 252.01
1979 245.53 261.61
1980 251.53 257.35
1981 262.69 263.92
1982 252.80 236.03
1983 260.04 247.58
1984 278.06 281.60
1985 293.44 292.95
1986 301.05 292.50
1987 315.90 304.59
1988 332.42 326.14
1989 341.13 333.72
1990 339.87 324.11
1991 326.42 300.93
1992 328.27 305.01
1993 338.23 322.96
1994 358.98 348.87
1995 370.99 365.03
1996 379.61 369.48
1997 399.76 393.00
1998 419.22 414.16
1999 447.21 451.06
2000 475.30 493.41
2001 482.69 475.84
2002 496.93 481.97
2003 505.90 477.71
2004 523.10 488.53
2005 539.74 497.19
2006 554.05 490.83
2007 564.88 475.85
2008 563.75 450.42
2009 533.47 388.29
2010 554.12 407.04
2011 575.08 421.17
2012 586.70 427.30
2013 604.02 425.91
2014 621.84 438.48
2015 626.12 439.22
2016 633.61 442.09

Canadian manufacturing sector after 2000

During the 1990s, the Canadian manufacturing sector experienced generally strong growth, owing to trade liberalization, the depreciation of the Canadian dollar, and innovations related to the adoption of information and communications technologies. Economic conditions changed after 2000, and, for the first time since 1961, real manufacturing growth in Canada stalled for over half a decade while the business sector continued to expand.

A number of factors likely contributed to weakening the demand for Canadian manufactured goods over this period: the bursting of the tech bubble in 2001; the global commodity boom; the appreciation of the Canadian dollar vis‑à‑vis its U.S. counterpart; and stronger competition from abroad, all of which provided a new and more challenging environment for Canadian manufacturers. Research indicates that the commodity boom and factors related to the dollar's appreciation played a role in the post‑2000 performance of the Canadian manufacturing sector, but that the manufacturing sector was also affected by lagging productivity growth and cyclical changes in demand.Note 

Slowest recovery in the manufacturing sector since the Second World War

The 2008‑2009 recession exacerbated the challenges faced by the Canadian manufacturing sector. While it affected virtually all business sector industries, the effects of the recession were particularly strong for manufacturing. GDP volumes in the manufacturing sector declined at an annual average rate of around 9% in 2008 and 2009, compared with an average annual contraction of less than 2% in the business sector.

In terms of real GDP, the manufacturing sector has generally experienced greater declines than the business sector during economic downturns.Note  However, the 2008‑2009 recession differed from earlier recessions in that manufacturing took much longer to regain its pre‑recession levels (Chart 2). And while the business sector returned to pre‑recession levels in less than two years, it took about six years for GDP volumes in manufacturing to return to pre‑recession levels. This post‑recession recovery period for manufacturing has been the slowest since the Second World War.

Chart 2 Post-recession monthly manufacturing output (months from peak in real gross domestic product)

Data table for Chart 2
Data table for Chart 2
Table summary
This table displays the results of Data table for Chart 2. The information is grouped by Min (appearing as row headers), Post-war manufacturing cycle recovery range and 2008-2009 recession, calculated using index October 2008=100 units of measure (appearing as column headers).
Min Post-war manufacturing cycle recovery range 2008-2009 recession
index October 2008=100
100 0 100
93.578 6.326 98.316
96.076 3.713 93.971
94.760 4.635 90.616
93.188 6.303 89.654
92.871 6.157 88.327
91.360 6.817 86.952
91.738 6.545 85.861
90.202 8.002 85.101
88.423 9.129 85.816
87.558 9.914 86.183
85.377 13.053 87.214
84.024 14.438 86.808
85.401 14.370 88.180
84.377 15.675 87.768
82.598 17.744 88.679
82.659 19.586 89.849
82.720 20.744 91.254
84.962 20.094 91.138
85.949 20.981 91.592
86.473 20.138 92.793
87.850 19.859 92.761
88.667 20.782 92.692
90.507 19.972 92.062
89.905 19.667 91.948
90.824 18.895 91.437
91.347 17.749 92.904
91.812 17.972 93.786
90.685 20.713 93.012
91.515 21.930 93.669
91.377 23.128 93.686
92.097 18.800 93.165
90.598 24.073 93.508
90.973 26.196 94.926
89.450 24.739 94.759
87.686 28.887 95.867
86.828 31.043 96.058
84.665 31.992 96.566
83.323 34.765 98.237
84.689 33.770 97.857
83.674 35.115 96.189
81.910 38.639 96.543
81.970 36.720 97.306
82.030 36.938 96.933
84.254 38.053 96.939
85.233 37.054 96.917
85.752 38.175 96.413
87.118 37.635 95.317
87.928 38.510 94.221
89.752 39.251 95.146
89.777 38.249 94.028
91.481 36.755 95.211
93.752 36.231 95.581
93.777 35.854 95.923
95.481 32.790 95.294
97.934 32.152 95.385
99.021 34.573 95.267
97.849 34.680 94.921
97.849 37.371 95.406
100.411 34.579 96.719
102.828 34.585 97.681
103.046 33.561 97.346
104.484 35.495 95.305
104.484 35.273 95.927
103.734 38.223 97.722
104.508 37.718 96.976
104.641 41.695 97.307
104.604 36.439 98.943
104.689 40.167 99.657
105.462 43.325 99.975
105.607 43.303 98.752
105.390 46.165 99.493
107.021 44.542 99.650
106.913 45.687 98.788
107.976 43.935 100.806
106.125 46.621 99.438
102.510 49.822 98.368
101.953 49.879 99.288
102.557 50.833 98.761
102.234 46.735 98.453
105.644 47.755 97.849
107.121 48.153 98.648
107.203 46.821 99.672
108.430 46.129 98.658
108.529 46.727 98.195
107.879 46.136 99.036
109.112 45.184 99.628
106.840 48.504 100.457
107.348 46.274 99.448
107.904 46.602 99.028
107.178 48.475 99.214
104.109 52.749 97.579
106.889 49.751 99.131
105.424 49.233 99.475
103.676 54.310 99.588
103.323 56.487 99.990
101.642 57.695 98.329
102.062 55.345 100.167
100.354 58.177 100.539

Different trend observed in the United States

In addition to being different relative to previous downturns, movements in the real growth of Canadian manufacturing output after 2000 have also been different from those in the United States. Following the entry into force of the Canada–U.S. Free Trade Agreement in 1989 and of the North American Free Trade Agreement in 1994, the Canadian and U.S. economies became increasingly integrated. Both countries faced some common economic shocks throughout the 2000s, and the relative performance of the business sectors in the two countries was remarkably similar. However, unlike the manufacturing sector in Canada, U.S. real manufacturing GDP growth did not diverge significantly from that of the business sectorNote  in the post‑2000 period (Chart 3). Thus a closer comparison of the Canadian and U.S. manufacturing sectors may inform the investigation into what is behind the divergence between the business sector and the manufacturing sector in Canada.

Chart 3 Canadian and U.S. real value added, 2000 to 2016

Data table for Chart 3
Data table for Chart 3
Table summary
This table displays the results of Data table for Chart 3. The information is grouped by Year (appearing as row headers), U.S. business sector, U.S. manufacturing, Canadian business sector and Canadian manufacturing, calculated using index 1990=100 units of measure (appearing as column headers).
Year U.S. business sector U.S. manufacturing Canadian business sector Canadian manufacturing
index 1990=100
2000 100.0 100.0 100.0 100.0
2001 100.9 96.0 101.3 95.9
2002 102.7 96.9 104.0 96.8
2003 105.6 101.8 106.0 96.0
2004 109.8 108.4 109.6 97.8
2005 113.7 110.8 113.1 99.3
2006 117.1 116.3 116.1 98.0
2007 118.9 120.1 118.5 95.3
2008 117.9 116.6 118.7 90.2
2009 114.1 107.7 113.3 77.7
2010 116.8 113.4 117.6 81.5
2011 118.9 113.7 122.0 84.3
2012 121.6 114.1 124.6 85.6
2013 123.9 116.3 128.4 85.3
2014 127.0 117.5 132.2 87.8
2015 130.6 119.3 133.4 87.9
2016 132.8 119.1 135.0 88.5

Chart 4 Manufacturing real gross domestic product, durable and non-durable goods sectors, 2000 to 2016

Data table for Chart 4
Data table for Chart 4
Table summary
This table displays the results of Data table for Chart 4. The information is grouped by Year (appearing as row headers), U.S. durable goods, U.S. non-durable goods, Canada durable goods and Canada non-durable goods, calculated using index 2000=100 units of measure (appearing as column headers).
Year U.S. durable goods U.S. non-durable goods Canada durable goods Canada non-durable goods
index 2000=100
2000 100.0 100.0 100.0 100.0
2001 93.6 99.3 92.0 101.9
2002 95.5 99.0 92.3 103.8
2003 101.8 102.0 91.5 103.0
2004 108.4 108.5 94.9 102.4
2005 115.4 105.4 97.6 102.2
2006 123.4 108.1 97.2 99.5
2007 128.7 110.1 95.1 95.8
2008 127.2 104.6 88.7 92.7
2009 108.5 105.6 72.5 85.4
2010 121.1 104.6 77.7 87.2
2011 128.7 98.3 83.0 86.8
2012 132.6 95.7 85.6 86.4
2013 134.2 98.4 85.4 86.0
2014 136.5 98.6 88.4 87.9
2015 137.6 100.9 87.2 89.7
2016 137.7 100.5 86.4 91.9

The ability of the U.S. manufacturing sector to keep pace with the U.S. business sector in terms of real GDP growth can be traced to the performance of its durable goods sectorNote  (Chart 4). While affected by the U.S. recessions both in the early 2000s and from 2007 to 2009, the U.S. durable goods sector managed to grow an average of 2.5% per year over the period from 2000 to 2016, compared with 0.0% for the U.S. non‑durable goods sector, ‑0.2% for the Canadian durable goods sector, and 0.0% for the Canadian non‑durable goods sector.

The U.S. durable goods sector grew faster than the Canadian durable goods sector up to 2007, was less affected by the last recession, and then grew slightly faster afterwards. While the differences in the non‑durable goods sectors were not as stark, the U.S. non‑durable goods sector performed better than its Canadian counterpart in the years leading up to the last recession and also experienced a milder contraction.

A more detailed analysis of the growth and contributions of key industries in the manufacturing sectors across all three time periods in both Canada and the United States is presented in the following sections.

Real gross domestic product growth in key manufacturing industries

Trends in the Canadian manufacturing sector are largely influenced by two key industries: food, beverage and tobacco (roughly 16% of total manufacturing and 32% of non‑durable goods manufacturing); and transportation equipment (15% of total manufacturing and 29% of durable goods manufacturing). The bulk of the transportation equipment industry comprises motor vehicles, motor vehicle parts, and aerospace production, all with roughly equal shares. A third industry, chemical manufacturing, makes up another 10% of manufacturing output (20% of non‑durable goods manufacturing) (Chart 5).Note 

In the United States, a little more than one‑half of the total manufacturing sector is made up of four key industries: chemicals (17%); computers and electronics (13%); transportation equipment (12%); and food, beverage and tobacco (12%) (Chart 6). Computers and electronics and transportation equipment each compose about 24% of the U.S. durable goods sector, while chemicals and food, beverage and tobacco compose 37% and 25%, respectively, of the U.S. non‑durable goods sector.

Chart 5 Canadian manufacturing nominal gross domestic product by industry

Data table for Chart 5
Data table for Chart 5
Table summary
This table displays the results of Data table for Chart 5. The information is grouped by Industry (appearing as row headers), Percentage of total manufacturing, 2013 (appearing as column headers).
Industry Percentage of total manufacturing, 2013
Food, beverage, tobacco 15.8
Transportation equipment 14.8
Chemicals 9.9
Fabricated metals 8.5
Machinery 8.3
Petroleum/coal products 6.3
Primary metals 5.3
Plastics/rubber 4.9
Wood products 4.8
Paper 4.1
Computers/electronics 3.3
Non-metallic minerals 3.3
Printing 2.4
Misc. manufacturing 2.4
Furniture 2.3
Electrical equipment 2.1
Textiles 0.6
Clothing 0.6

Chart 6 U.S. manufacturing nominal gross domestic product by industry

Data table for Chart 6
Data table for Chart 6
Table summary
This table displays the results of Data table for Chart 6. The information is grouped by Industry (appearing as row headers), Percentage of total manufacturing, 2013 (appearing as column headers).
Industry Percentage of total manufacturing, 2013
Chemicals 17.4
Computers/electronics 12.8
Transportation equipment 12.4
Food, beverage, tobacco 11.7
Petroleum/coal products 8.1
Machinery 7.2
Fabricated metals 7.0
Misc. manufacturing 3.8
Plastics/rubber 3.5
Primary metals 2.8
Paper 2.7
Electrical equipment 2.7
Non-metallic minerals 2.1
Printing 1.9
Wood products 1.3
Furniture 1.2
Textiles 0.8
Clothing 0.5

Chart 7 Canadian manufacturing real gross domestic product, select industries, 2000 to 2016

Data table for Chart 7
Data table for Chart 7
Table summary
This table displays the results of Data table for Chart 7. The information is grouped by Year (appearing as row headers), Food, beverage and tobacco, Chemicals and Transportation equipment, calculated using index 2000=100 units of measure (appearing as column headers).
Year Food, beverage and tobacco Chemicals Transportation equipment
index 2000=100
2000 100.0 100.0 100.0
2001 106.7 102.6 90.2
2002 105.2 108.5 90.0
2003 103.7 112.1 91.5
2004 103.3 110.4 94.1
2005 107.5 107.7 98.2
2006 109.3 108.7 97.9
2007 110.7 99.2 96.7
2008 115.4 93.5 85.2
2009 114.1 84.7 65.3
2010 115.7 89.8 75.4
2011 115.3 91.9 80.1
2012 113.9 91.6 87.1
2013 116.0 93.4 86.2
2014 120.4 95.2 92.4
2015 122.2 98.8 92.0
2016 127.7 103.7 91.7

Chart 8 Canadian transportation equipment output, 2000 to 2016

Data table for Chart 8
Data table for Chart 8
Table summary
This table displays the results of Data table for Chart 8. The information is grouped by Year (appearing as row headers), Motor vehicle, Motor vehicle parts and Aerospace, calculated using index 2000=100 units of measure (appearing as column headers).
Year Motor vehicle Motor vehicle parts Aerospace
index 2000=100
2000 100.0 100.0 100.0
2001 86.9 92.3 100.5
2002 91.1 96.7 85.6
2003 90.1 100.8 79.9
2004 92.2 104.8 83.1
2005 97.3 105.8 91.1
2006 94.3 100.8 95.5
2007 90.1 95.2 101.0
2008 68.6 75.4 113.5
2009 48.4 54.8 98.5
2010 72.0 66.5 93.7
2011 73.6 71.9 95.0
2012 84.2 81.0 99.0
2013 80.4 78.2 104.5
2014 82.5 85.1 110.3
2015 81.6 88.4 104.5
2016 82.5 94.3 97.8

The pattern of growth in the Canadian transportation equipment industry over the 2000‑to‑2016 period (Chart 7) resembles the pattern of growth in the Canadian durable goods sector (Chart 4). While declines were broad based across nearly all durable goods industries during the recession, the transportation equipment industry experienced the largest contraction by far, declining by more than 32% during the downturn. This was largely due to significant contractions in both the motor vehicle industry (‑46%) and the motor vehicle parts industry (‑42%) (Chart 8). In addition, while these two sectors have grown since the last recession, they have yet to return to pre‑recession levels, let alone levels seen in 2000. The aerospace industry, in contrast, performed considerably better as of the mid‑2000s and throughout the recession. Despite this, the level of real GDP in aerospace in 2016 was slightly lower than its level in 2000, and its relatively stronger performance was not sufficient to offset the overall decline of the motor vehicle and motor vehicle parts industries.

In contrast to the Canadian transportation equipment industry, the U.S. transportation equipment industry experienced significant positive overall growth from 2000 to 2016 (Chart 9). This industry was also heavily affected by the last recession, contracting 28% during the downturn. However, it rebounded rapidly, led by an increase of more than 100% in output in the motor vehicle and parts industries in 2010 alone, and by 2013 the transportation equipment industry had returned to 2008 levels.

While the performance of the U.S. transportation equipment industry from 2000 onward helps partially explain why U.S. output of durable goods outperformed Canadian output of durable goods, the U.S. computer and electronics industry played a much larger role in driving manufacturing output (Chart 9). Real GDP in this industry rose more than 120% between 2000 and 2007, and, following a brief period of limited growth during the recession, expanded a further 32% between 2010 and 2016. Overall, real GDP rose more than 200% in this industry between 2000 and 2016. No industry in the Canadian manufacturing sector exhibited growth of this magnitude.

Chart 9 U.S. manufacturing real gross domestic product, select industries, 2000 to 2016

Data table for Chart 9
Data table for Chart 9
Table summary
This table displays the results of Data table for Chart 9. The information is grouped by Year (appearing as row headers), Chemicals, Food, beverage and tobacco, Transportation equipment and Computers and electronics, calculated using index 2000=100 units of measure (appearing as column headers).
Year Chemicals Food, beverage and tobacco Transportation equipment Computers and electronics
index 2000=100
2000 100.0 100.0 100.0 100.0
2001 98.9 101.8 93.9 95.9
2002 105.2 96.7 100.4 103.9
2003 105.4 99.8 105.5 129.7
2004 114.1 101.6 107.7 148.3
2005 108.1 101.0 115.1 167.5
2006 119.7 112.3 123.7 195.5
2007 126.7 112.6 126.6 220.7
2008 115.8 107.3 110.9 247.8
2009 117.8 115.9 91.0 249.3
2010 125.4 111.2 104.6 278.6
2011 118.2 107.4 118.5 288.5
2012 112.5 105.7 122.7 301.1
2013 114.0 106.6 127.1 303.6
2014 112.7 105.0 131.2 309.4
2015 114.6 104.6 134.4 321.9
2016 114.9 100.5 138.1 329.1

Less is learned by comparing the key industries in the non‑durable goods sectors. The Canadian and U.S. chemical industries grew at roughly the same rate up to 2005; however, during the recession, the Canadian chemical industry contracted more than twice as much as the U.S. chemical industry. Output in Canada's chemical industry outperformed output in its U.S. counterpart after the recession. However, neither the Canadian chemical industry nor the U.S. chemical industries have returned to their respective pre‑recession peaks as of 2016.

The food, beverage and tobacco industry performed somewhat differently. While both countries experienced similar growth up to 2007, the U.S. industry contracted 4.7% in 2008, and, following a brief rebound in 2009, output has steadily declined ever since. In contrast, the Canadian food, beverage and tobacco industry experienced a much smaller contraction (about 1% in 2009), and output has essentially expanded ever since. While the Canadian food, beverage and tobacco industry was well above pre‑recession levels in 2016, output in the U.S. industry continued to decline.

Contributions to real manufacturing gross domestic product growth

The relative size of Canada's transportation equipment industry and its pattern of growth over time suggest that it could be at least partly responsible for the relatively weak growth and slow recovery of the Canadian manufacturing sector over the post‑2000 period. The previous section also showed that the strong growth in the U.S. computer and electronics industry contributed to the stronger performance of the U.S. durable goods sector relative to that of Canada's, allowing the U.S. manufacturing sector to keep pace with growth in the U.S. business sector. For simplicity and flexibility, a Törnqvist indexNote  is used to calculate the contributions to real GDP growth from each three‑digit NAICS manufacturing industry for both Canada and the United States to examine to what extent the weakness in Canada's overall manufacturing growth came from the transportation equipment industry. The index is also used to examine the contribution to manufacturing growth from the U.S. computer and electronics industry. Finally, the index is used to determine which other industries contributed to the difference in the performance of the manufacturing sectors in Canada and the United States.

Table 1
Average contribution to manufacturing growth
Table summary
This table displays the results of Average contribution to manufacturing growth 2000 to 2007, 2008 to 2009 and 2010 to 2016, calculated using percentage points units of measure (appearing as column headers).
2000 to 2007 2008 to 2009 2010 to 2016
Canada U.S. Difference Canada U.S. Difference Canada U.S. Difference
percentage points
Total manufacturing (growth) 0.7 3.1 -2.4 -9.6 -5.3 -4.3 1.9 1.5 0.4
Durable goods 0.4 2.6 -2.2 -7.2 -4.3 -2.9 1.3 1.9 -0.6
Wood products 0.2 0.0 0.2 -0.6 -0.2 -0.4 0.3 0.0 0.3
Non-metallic minerals 0.1 0.0 0.1 -0.3 -0.4 0.1 0.0 0.0 0.0
Primary metals 0.1 -0.1 0.2 -1.2 0.0 -1.2 0.2 0.2 0.0
Fabricated metals 0.2 0.1 0.1 -0.9 -1.1 0.2 0.1 0.2 -0.1
Machinery 0.1 0.1 0.0 -0.7 -0.7 0.0 0.1 0.1 0.0
Computers and electronics -0.2 2.0 -2.2 -0.3 0.8 -1.1 -0.1 0.5 -0.6
Electrical equipment -0.1 0.0 -0.1 -0.1 -0.2 0.1 0.0 0.0 0.0
Transportation equipment -0.1 0.4 -0.5 -2.6 -2.4 -0.2 0.7 0.9 -0.2
Furniture 0.0 0.0 0.0 -0.4 -0.3 -0.1 0.0 0.0 0.0
Miscellaneous manufacturing 0.0 0.1 -0.1 -0.2 0.2 -0.4 0.0 0.0 0.0
Non-durable goods 0.3 0.5 -0.2 -2.3 -0.9 -1.4 0.6 -0.5 1.1
Food and beverage 0.1 0.2 -0.1 0.0 0.2 -0.2 0.3 -0.3 0.6
Textiles -0.1 -0.1 0.0 -0.2 -0.1 -0.1 0.0 0.0 0.0
Clothing 0.0 -0.1 0.1 -0.1 -0.1 0.0 -0.1 0.0 -0.1
Paper 0.0 -0.1 0.1 -0.6 -0.1 -0.5 0.0 -0.1 0.1
Printing 0.0 0.1 -0.1 -0.2 -0.2 0.0 -0.1 0.0 -0.1
Petroleum 0.0 0.1 -0.1 0.0 0.2 -0.2 -0.1 0.0 -0.1
Chemicals 0.1 0.4 -0.3 -0.6 -0.5 -0.1 0.3 -0.1 0.4
Plastics and rubber 0.1 0.0 0.1 -0.6 -0.2 -0.4 0.2 0.0 0.2

Between 2000 and 2007, the difference in the average growth of manufacturing GDP between Canada and the United States (‑2.4 percentage points) was primarily accounted for by the difference in the contributions of the computer and electronics industries (‑2.2 percentage points). The difference in the contributions of the transportation equipment industries (‑0.5 percentage points) and the chemical industries (‑0.3 percentage points) were of secondary importance (Table 1). Even if the contribution of the Canadian transportation equipment industry had been the same as in the United States over this time period, growth in the Canadian manufacturing sector and the Canadian durable goods sector would still have been less than half of that in the United States. It therefore would have been insufficient to raise the growth of the Canadian manufacturing industry enough to match the growth exhibited in the business sector. Over the 2000‑to‑2007 period, it was the much larger contribution of the U.S. computer and electronics industry that made it possible for the U.S. manufacturing sector to match the growth of the business sector.

During the last recession, the difference in the contributions of the computer and electronics industries (‑1.1 percentage points) continued to play an important role in accounting for the Canada–U.S. difference in the average growth of manufacturing output (‑4.3 percentage points). Although the Canadian transportation equipment industry made the single largest negative contribution to Canadian manufacturing growth during the recession (‑2.6 percentage points of the overall ‑9.6 percentage points for all of manufacturing), neither it nor the chemical industry accounted for why the manufacturing industry contracted more during the recession in Canada than in the United States. Instead, a number of other industries, such as primary metals, wood products, miscellaneous manufacturing, paper, and plastics and rubber, together accounted for a large part (‑2.9 percentage points) of the Canada–U.S. difference in the average growth of manufacturing output over that period.

After the recession, the computer and electronics industry continued to account for a large portion of the Canada–U.S. difference in growth in the durable goods sector (‑0.6 percentage points of the ‑0.6 percentage point difference). The Canadian transportation equipment industry continued to contribute less than its U.S. counterpart, but its relative contribution again played a minor role in accounting for the overall Canada–U.S difference. The non‑durable goods sector in Canada outperformed that in the United States in the post‑2008‑2009‑recession period, in large part due to contributions by the Canadian food, beverage and tobacco industry and the Canadian chemical industry.

Conclusion

Between 1961 and 2000, real GDP in the Canadian manufacturing sector grew at essentially the same rate as that in the business sector. After a decade of strong growth during the 1990s, partly attributable to trade liberalization and a weaker dollar, the Canadian manufacturing sector adjusted to significant changes in the economic environment during the 2000s. Real GDP growth in the manufacturing sector slowed markedly, diverging from the overall business sector for the first time. The 2008‑2009 recession exacerbated the challenges faced by the manufacturing sector, and, subsequently, as of 2016, the recovery was the slowest since the Second World War. In the United States, there has been no corresponding divergence between GDP growth in the manufacturing sector and the business sector over this period.

A major portion of the post‑2000 slowdown in Canada's manufacturing sector stems from the weak performance of the durable goods sector. Negative growth in the transportation equipment industry was a factor, but even if the percentage point contribution of the Canadian transportation equipment industry to growth in the durable goods sector had been the same as in the United States, growth in the Canadian durable goods sector would still have been much weaker than in the United States. Instead, outside of the last recession, the contribution of the computer and electronics industry in the United States has largely accounted for the relatively weaker performance of the Canadian durable goods sector. No manufacturing industry in Canada has matched the performance of the U.S. computer industry over the post‑2000 period.

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