With the sole exception of oil and gas, Canadian industries dramatically cut the amount of production capacity they used in the first quarter, led by lower activity in the automotive sector, Statistics Canada said Wednesday.

Capacity utilization, which measures how much production capacity is actually being used and is an indicator of how hot the economy is, dropped to 79.8 per cent in the first quarter from 81.8 per cent in the fourth quarter of 2007.

Analysts had been expecting the figure to drop only slightly to 81 per cent.

The 79.8 per cent level is 7.3 points below the peak of 87.1 per cent reached at the end of 2000, Statscan said.

Crude oil production grew enough during the first quarter to make up for a dip on the natural gas side and push up capacity use by oil and gas producers combined by 0.8 of a percentage point to 81.7 per cent, Statscan said.

In the manufacturing sector, capacity use fell below 80 per cent for the first time in seven years, with the figure dropping to 77.2 per cent from 80.3 per cent, as every major group except leather products posted a drop.

Driven by the auto sector, where plant shutdowns for retooling plus a strike at a U.S. parts supplier took a big toll, the transportation equipment industry saw capacity use fall to 77.2 per cent from 83.2 per cent in the preceding quarter.

Also a big loser was wood products, where weak U.S. residential construction saw capacity usage drop six percentage points to 64.8 per cent. This was the lowest level in 17 years, Statscan said.

Makers of non-metallic mineral products, meanwhile, used just 72.2 per cent of their capacity, down 6.7 points from the previous quarter. A drop in the production of cement and glass products destined for construction was at the heart of the decline.

For their part, plastic and rubber manufacturers were hit by the auto production cutbacks and saw their capacity use fall to 68 per cent from 72.7 per cent.

Dawn Desjardins, assistant chief economist at Royal Bank of Canada, told clients in a note that the decline in the capacity utilization rate is “in line with the economy having slipped into excess supply in the first quarter of this year after a prolonged period when [it] was running at a speed that was faster than potential.”