Economic Update from the Canadian Chamber...
December 13, 2006
13 December 2006
Economic Update from the Canadian Chamber of Commerce
Canadian industries continue to cut back their use of production capacity. In the third quarter of 2006, industries overall operated at 84.2% of their capacity marking the third consecutive quarterly decline….
Overall, capacity use declined in 12 of 21 manufacturing groups. …
The bottom line: Capacity utilization rates are closely watched by policymakers (including the Bank of Canada) and economists as an indicator of future changes in inflation -- as excess demand builds, firms tend to incur higher production costs in order to increase output, which could be passed on to consumers in the form of higher prices.
Today's data was weaker than had been expected. It reinforces the view that the economy is slowing down. It also indicates that the Canadian economy is moving away from operating "just above its full production capacity" as stated by the Bank of Canada in its October Monetary Policy Report, and builds on the case for cutting interest rates in 2007.