Interdependent sectors

	Mechanical cranes Photo: Comstock

Together, manufacturing and construction accounted for about 22% of our GDP in 2002, and are thus an instrumental part of Canada's prosperity. Although both sectors are distinct parts of the economy, they are highly dependent on each other for success: anything that stimulates one sector has the potential to affect the other.

A computer manufacturer looking to increase production, for example, may decide to expand its facilities by constructing a new plant. The products and equipment needed for the construction of such a facility span the manufacturing spectrum. Construction generally begins with excavation, using equipment produced by the machinery industry. A steady stream of trucks, made by our transportation equipment industry, soon begins rolling onto the site to deliver goods. These materials—concrete, plywood, structural steel, paint and asphalt roofing—are all produced by different manufacturing industries. If large enough, the expansion of the plant may actually stimulate an increase in the number of construction jobs in the region. The workers hired to fill them use a variety of equipment manufactured specifically for the construction sector. After completion, the building is furnished with office equipment, furniture and plants. Finally, its surroundings may be landscaped before all is ready for the new employees, taken on to fill the jobs created by the computer company's expansion.

In recent years, the manufacturing and construction sectors have experienced both good times and bad. In 1989, on the eve of the recession of the early 1990s, about two million Canadians worked in manufacturing, contributing $122 billion to the GDP (1997 constant dollars).That same year, the number of building permits, an indication of construction activity, topped $39 billion, $4.5 billion more than in 1988. By 1991, however, manufacturing’s contribution to the national GDP slipped to $109 billion, while building permits bottomed out in 1995 at under $25 billion. By 2002, GDP in construction had gained ground again and reached a record high of over $51 billion while GDP in manufacturing reached $164 billion, down from its peak of $168 billion recorded in 2000. In 2002, nearly 615,000 people worked in construction, up from nearly 576,000 in 2001. More than two million people worked in manufacturing, up 14,000 from the year before.

At the end of the 1990s, both construction and manufacturing were operating at nearly 90% capacity. By 2001, however, the industries’ growth had cooled down a bit, especially in manufacturing where capacity utilization rates had dropped a few percentage points. In 2002, there was a bit of a rebound, primarily in manufacturing.

What accounts for these recent variations? To say the least, the last few years have been tumultuous for the North American economy. The meteoric rise of the stock market in the late 1990s and the year 2000 was representative of a booming economy. As such, Canada experienced significant growth in most sectors, including manufacturing and construction. Unfortunately, the bursting of the stock market bubble, the terrorist attacks as well as numerous corporate scandals in the United States, deflated much of this growth. This led to a substantial slowdown in 2001. Fortunately, a recession was averted partly because of record low interest rates. These low interest rates helped push demand for housing to new heights resulting in a boom for the construction industry. The housing boom also led to significant spinoff effects on several other sectors, including many within manufacturing. Low interest rates also affected the purchases of other big-ticket items such as automobiles and furniture, sales of which were also up in 2002.