When Stephen Poloz took the helm at the Bank of Canada last year, he said one of the central bank’s aims would be to help exporters, particularly manufacturers, take over leadership of the country’s economy from its debt-burdened consumers.

Poloz thinks a rise in exports will give companies confidence to invest in their businesses again, including increasing hiring. He hopes this will beget a virtuous economic cycle of higher production leading to higher employment, leading to higher demand leading to higher production. Though progress in these areas hasn’t exactly been smooth, on the manufacturing front, at least, the latest data are encouraging.

According to Statistics Canada (StatCan), the manufacturing sector’s performance in July was one of the few bright spots in an otherwise disappointing month for the country’s national accounts. Gross domestic product (GDP) growth over June was a significant three-tenths of a percentage point below economists’ consensus forecast. On a year-over-year basis, GDP grew 2.5%, also three-tenths of a point below consensus.

Manufacturing was by far the biggest contributor to growth in the private sector, with output up 1% since June and 4.7% year-over-year, thanks to higher production of transportation equipment, computer and electronic products, and furniture.

In fact, StatCan reported that July manufacturing sales hit an all-time high of $47.8 billion, exceeding the previous record set back in July 2008, just before the Global Financial Crisis began. The sector accounted for nearly 11% of GDP in July.

On the downside, activity in the resource sector fell by 1.5%, with a 1.6% decline in oil and gas extraction and a 1.7% drop in mining, mainly due to coal. Even so, the sector was up 7.2% year-over-year, which still makes it the strongest performer among all industries. Resources accounted for 8.4% of GDP that month.

According to Bloomberg, private-sector economists forecast GDP growth of 2.65% for the third quarter and 2.3% for full-year 2014. While the former is slightly ahead of the BoC’s more conservative projection of 2.3% for the third quarter, the central bank’s expectation for full-year growth is in line with its private-sector peers.

Tighten Up

StatCan also reported that Canada’s capacity-utilization rate, which measures the extent to which industries use their capacity to produce goods and services, climbed to 82.7% during the second quarter, for the fourth consecutive quarterly rise. 

Although this fell short of the consensus forecast by two-tenths of a percentage point, it was a sequential improvement of six-tenths of a point from the prior quarter and a full 2 percentage points higher than a year ago. In fact, second-quarter capacity use was at its highest level since 2007. And at this level, the rate is within shouting distance of its pre-crisis average.

During the five-year period that ended June 30, 2007, the utilization rate averaged 84%. By contrast, it’s averaged 80% over the trailing five-year period that ended June 30. Second-quarter performance was driven by the manufacturing sector, with a utilization rate  that rose to 82%, a full point better than the prior quarter and 2.4 points higher than a year ago.

The sector’s utilization rate previously hit a post-GFC high of 82.4% in 2012, before declining toward an interim bottom of 79.4% later that year. At its current level, manufacturing is operating at a capacity level that’s just nine-tenths of a point below its pre-GFC five-year average.

Economists with CIBC World Markets note that Canada lost more than 8,000 manufacturing firms over the period from 2006 through 2012. The firm observes that the manufacturing sector’s already-tight capacity usage will require further investment to sustain this performance.