This morning’s economic data releases highlight the health of two important sectors of the Canadian economy, manufacturing and construction.

First, Canadian capacity utilization came in at 83.3% in the third quarter, up from 82.5% in the second quarter. Capacity utilization is now back where it was prior to the world economic downturn.

“Two facts stand out,” says RBC Financial Group. “One, the gain over the last three quarters has been the strongest since 1987 when the data series began. This is particularly true of capacity use in manufacturing which has risen 5.2 points to 84.6% from 79.4% at the end of last year. Two, the gap between Canadian and U.S. capacity use, at 11.1 percentage points in manufacturing, is at its widest ever. The U.S. October manufacturing capacity utilization rate was just 75.4%.”

The other release showed that new house prices rose 0.5% from September to October, up 4.7% year-over-year, the strongest annual increase since 1990. “However, the pace of inflation, while higher than expected, remains very much below the double-digit annual rates of the late 1980s boom,” observes RBC. “This comforting factor is reinforced by other supply-side measures that show builders are not responding to the strong housing market by foisting inordinate amounts of homes onto the market, which would cause prices to eventually crash. Rather, supply and demand remain in relatively good balance, suggesting house prices will continue their moderate appreciation, spurring continued move-up buying and continued new housing starts.”

“Although rising interest rates in 2003 may take a bite out of the first-time homebuyers market, housing activity should remain at elevated levels for the next several quarters,” predicts RBC.

Taken together, this data provides reassurance that there was enough fundamental strength in manufacturing and construction to allow for several more quarters of growth regardless of whether U.S. growth picks up or not, RBC comments.