Labor productivity in Canada's manufacturing sector increased at average annual rate of 3.6% from 1990-2000, 0.9% between 2000-2010; slowdown driven by restructuring resulting from increase in excess plant capacity: Statistics Canada

Cindy Allen

OTTAWA , December 12, 2011 (Statistics Canada) – Growth in labour productivity in the Canadian manufacturing sector slowed substantially in the years after 2000. At least half of this slowdown was because of restructuring resulting from an increase in excess plant capacity during this period.

Much of the remainder of the overall slowdown was attributable to the general decline in the production efficiency of manufacturing plants.

Between 1990 and 2000, labour productivity in the manufacturing sector increased at an annual average rate of 3.6%. However, between 2000 and 2010, the average annual growth rate slowed to 0.9%.

Excess capacity in the Canadian manufacturing sector developed during the decade following 2000. During this period, capacity utilization declined in 16 of the 20 manufacturing industries.

In 1999, overall capacity utilization in manufacturing averaged 86%. By 2003, it had declined to 81%, and by 2006, it had returned to 83%. In the electrical products industry alone, capacity utilization fell from 92% in 2000 to 73% in 2003, returning to 80% by 2006.

In the post-2000 period, the manufacturing sector contracted at an annual average rate of 0.3%, compared with an annual average increase of 3.4% between 1990 and 1999.
Emergence of excess capacity

Some of the excess capacity that developed in the years following 2000 reflected the general economic slowdown in North America early in the decade and the appreciation of the Canadian dollar.

Those changes in the economic environment resulted in large declines in manufacturing exports during this period.

The emergence of excess capacity in several industries after 2000 was also related to major long-term structural adjustments. For example, the electronic-product manufacturing sector went through readjustment after the collapse of the dot-com bubble in the early 2000s.

Moreover, pulp and paper manufacturing contracted as newspapers in the United States faced increasing competition from the Internet.

Non-durable goods industries such as textiles, leather and clothing also faced increasing global competition from imports from emerging economies that resulted in falling output volumes in these industries.

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