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Canadian Industrial Forecasting Model

The Canadian Industrial Forecasting Model (CIFM) is composed of close to 1,000 behavioural equations and identities that describe mathematically the economic and financial relationships between key variables for the following 16 Canadian industries:

Accommodations Motor Vehicle Manufacturing
Aerospace Product Manufacturing Motor Vehicle Parts Manufacturing
Air Transportation Crude Oil Extraction
Computer System Design Natural Gas Extraction
Computer and Electronic Product Manufacturing Residential Construction 
Telecommunications Non-Residential Construction
Food Manufacturing Paper Products
Food Services Wood Products

In addition, brief two-page profiles—which include a five-year forecast of key economic indicators, a discussion of industry trends, and a SWOT analysis (strengths, weaknesses, opportunities, and threats)—are produced for the following 23 Canadian industry sectors once a year:

Chemicals Electrical Equipment Furniture
Pharmaceuticals Textiles and Apparel Accommodation
Oil and Gas Support Activities Professional Services Food Services
Plastic and Rubber Products Aerospace Products Food and Beverage
Non-Metallic Mineral Products Wood Products Retail Trade
Computer and Electronic Products Paper Products Wholesale Trade
Fabricated Metal Products Motor Vehicle Parts Transportation and Warehousing
Machinery Printing & Publishing  

The CIFM builds upon the Conference Board’s existing economic forecasting services. It is based on a single set of internally consistent macroeconomic assumptions for such key drivers as interest rates, the exchange rate, and tax policy—not only in Canada, but worldwide. This enables cross-industry comparisons to be made on a common basis.

First, we compile the historical data for prices, production, exports, imports, revenues, expenditures, investment, profits, output (GDP $), and employment by industry. Next, the industrial forecasting model is built using both demand drivers for endogenous demand equations and an accounting structure for the financial variables. We then use the model in conjunction with a consistent set of assumptions from our world, Canadian, provincial, and metropolitan forecasts and our ongoing monitoring of international, national, and regional events to produce the industrial forecast. This ensures that the forecast is consistent, quantifiable, and based on a proven forecasting methodology.

Traditional econometric techniques are used to estimate demand equations. These equations vary depending on the industry modelled (e.g., importance of trade, dependence of the industry on domestic economic conditions, manufacturing or service industry, price taker or price setter). A key original aspect of our methodology revolves around our approach to modelling profits.

Using the North American Industrial Classification System, each industry is broken down into its key sub-industries. An econometric model supports the profitability forecast for each sub-industry. Forecasts of demand, exports, and imports are based on economic factors that affect them, including income, input prices, selling prices, and the exchange rate. Population dynamics also play a crucial role in the model, as do the interdependencies across the various industries. In some instances, because some parts of the industries are regulated, the specific relationships that govern the evolution of the sector’s structure are evaluated outside the model. However, special care is taken to allow the model to respond to changes in regulatory regimes or other external factors.

Subsequently, forecasts for domestic production by industry are derived based on the assumption that production will be equal to demand. Once again, special considerations are given to instances where supply may be constrained by regulation or by the amount of available resources.

The outlook for revenues is determined by combining the forecast of production with the projections for price changes. This implies that revenues can increase as a result of an increase in real output, an increase in the prices of outputs, or a combination of both. Conversely, a drop in production or prices leads to a decline in revenues.

For each industry, the cost side of the ledger is based on projections of costs in three categories: labour, capital, and material. Labour costs are calculated from forecasts of employment, productivity, and the wage rate, while capital costs are based on the capital stock, depreciation, and interest rates. To project material costs, a special input cost index was developed for each industry. This index is based on the price of inputs and their relative importance in the production process of each industry. Forecasts of material costs are then derived by projecting the indexes after accounting for the impact that productivity growth has on costs.

Profit projections are derived by simply subtracting total costs from total revenues. The forecasts are provided quarterly for the next five years. They are based on the most recent historical data available from Statistics Canada.

What Data is Available?

The indicators produced by the industrial forecasting model are available in our Canadian Industrial Sector Forecast Database Service.

View the data available in the Canadian Industrial Sector Forecast Database Service

Forecasts and research often involve numerous assumptions and data sources, and are subject to inherent risks and uncertainties. This information is not intended as specific investment, accounting, legal, or tax advice.

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