Canadian economic accounts

Real gross domestic product (GDP) advanced at a slower but still healthy 0.8% in the third quarter, as new housing activity and exports picked up strength, consumer spending was flat and business capital spending slowed. The gain in exports led to an expansion of the surplus on current transactions with non-residents. The economy lost some steam near the end of the quarter, however, with GDP edging up a modest 0.1% in September. The US GDP grew 1.0% in the third quarter.

There was continued widespread industrial expansion underlying economic growth in the third quarter. Construction, along with its associated feeder industries, was buoyed by the strong demand for new housing. Manufacturing was led by increased production of motor vehicles in response to foreign demand. Utilities output reflected a higher demand for electricity.

Aggregate economic activity has strengthened notably over the last year. GDP growth has averaged 1.0% in the last four quarters, well above the average in the previous four quarters.

Domestic demand - consumer, business and government spending combined - slowed to about half the pace of the second quarter, despite the high level of activity in the new housing market that pushed investment in residential structures up 3.8%. Consumer spending was essentially unchanged, after having grown nearly 1% in each of the last three quarters. Business investment in plant and equipment edged up 0.5%, compared with 2.2% in the second quarter. Despite the recovery in profits and lower interest rates in 2002, investment remains about 5% lower than the peak in the third quarter of 2001. Exports of Canadian goods grew briskly in the third quarter of 2002, on the strength of record sales of autos and motor vehicle parts.

This strength in exports pushed the surplus on trade in goods to its highest level in over a year and was a key driver behind the gain in the overall current account surplus in the third quarter. The strong Canadian economic performance saw Canadian multinationals invest over $11 billion of working capital in their foreign affiliates. As a result of weak stock markets, investment funds experienced large net withdrawals that led to the lowest investment in foreign shares in five years. At the same time, foreign investors sold back $4.5 billion of Canadian shares to Canadian investors, partly resulting from the dropping of Canadian stocks from a key US index. Foreign direct investment in Canada was at its lowest level in seven years.

National economic and financial accounts

Consumer spending contributed modestly to economic growth in the third quarter, up 0.1% after three quarters of stronger gains. Consumer credit borrowing declined, as expenditure on durable goods fell 1.2%.

Results by commodity were mixed. Although expenditures on cars remained at historically high levels, consumers spent 4.6% less on new trucks and vans. Spending on tobacco products fell 6.3%, following increases in federal and certain provincial taxes on tobacco, which came into effect June 18. Warmer-than-normal temperatures resulted in increased expenditures on electricity for air conditioning. Expenditures on alcoholic beverages purchased in stores or consumed in licensed premises increased, as did restaurant food expenditures.

Net government expenditure on goods and services increased 0.7%, following a similar gain in the second quarter. Increased education and health spending at the provincial and local government levels contributed to this change.

Business investment in plant and equipment decelerated sharply. Expenditure on non-residential construction continued to decline (-0.6%), whereas spending on machinery and equipment grew 1.2%, about one-third of the rate set in the second quarter. Investment in cars, trucks and other transportation equipment increased for the third consecutive quarter. However, reduced industrial machinery investment, which had rebounded in the second quarter, offset some of the increase. Investment in telecommunications equipment also fell, for the fifth consecutive quarter.

Investment in residential structures (+3.8%) helped sustain economic growth, as the demand for new homes was renewed after lower activity in the second quarter. Housing construction advanced strongly (+7.2%) and spending on renovations also accelerated (+1.6%). Activity in the resale market declined, but by less than in the second quarter, reflecting a pick-up in August and September. Household demand for mortgages was up, as interest rates declined marginally.

Exports posted the strongest gain (+2.3%) in ten quarters. Sales to non-residents were stimulated by US demand for automotive products, reflecting the strength of consumer spending on motor vehicles and parts in US GDP. In the later part of the quarter, exports of new trucks also increased in anticipation of a new diesel motor emission standard in the United States on October 1. Machinery and equipment exports, including engines and turbines, recovered (+2.1%), and lumber exports rebounded 5.6% from the second quarter, when anti-dumping and countervailing duties were imposed by the United States. Import growth slowed sharply (+1.5%) and was driven by demand for products used to fuel production in auto manufacturing.

Corporate profit growth slowed to 3.0%, but profits reached their highest level since the peak in the first quarter of 2001. The resulting relatively high level of undistributed earnings, coupled with both lower capital spending and takeover activity, led to a reduced corporate demand for funds in the third quarter. Over the last several quarters, the improved financial position of business has been evident in a large and atypical net lending position in the corporate sector. This reflects the ongoing strength in internally generated funds, and a significant trend toward reliance on equity finance and away from debt finance.

Personal income rose 0.9%, marking the fifth straight quarterly increase. Further gains in employment continued to boost labour income (+1.3%). Growth in disposable income matched that of outlays; as a result, the saving rate remained steady at 4.7%. However, the household debt-to-income ratio increased to 96.5%. Although household debt has continued to rise, the cost of carrying consumer loans and mortgages has not kept pace and was largely unchanged in the third quarter.

Government revenues continued to outpace expenditure, so that the surplus (national accounts basis) for all levels of government combined rose to $13.1 billion in the third quarter, up from the second quarter and significantly higher than the previous two quarters.

Canada's balance of international payments

The seasonally adjusted current account surplus expanded to $5.1 billion in the third quarter, as the goods surplus reached $14.0 billion. Exports increased $2.9 billion, led mainly by record exports of cars and motor vehicle parts. Machinery and equipment, energy products and industrial goods also recorded significant increases. The $2.4 billion increase in imports was distributed among all major categories of goods, with the largest gains recorded for automotive products, followed by aircraft, engines and parts.

The deficit on commercial services declined slightly, as imports fell $0.2 billion, almost entirely the result of lower payments of commissions on securities. The deficit in travel remained unchanged in the third quarter, but the deficit in transportation widened slightly, reflecting higher payments for water transportation. With lower receipts and unchanged payments, the deficit in investment income increased marginally, in line with lower profits on Canadian direct investment abroad.

The capital and financial account (not seasonally adjusted) recorded a net increase in foreign assets of $7.6 billion in the quarter. Canadian direct investment abroad rose again to its highest level in five quarters - $12.8 billion. As in the first quarter, most of the investment went to existing affiliates for working capital purposes. In addition, Canadian investors purchased $2.1 billion worth of foreign securities, their lowest quarterly investment in over three years. This reflected mainly a drop in Canadian acquisitions of foreign equities, in line with the relatively superior performance of Canadian stock markets and lower sources of funds available to institutional investors, notably mutual funds.

Foreign direct investment was at its lowest level in over seven years, and has slowed markedly over the three quarters of 2002. Just $1.6 billion flowed into the Canadian economy in the third quarter. Company acquisitions, which were a driving force in direct investment for some time, have been negligible in the latest two quarters. Foreign investors reduced their holdings of Canadian securities by $3.6 billion in the third quarter. The divestment, which was wholly concentrated in equities and money market paper, came after three quarters of buying, totalling $30.1 billion. Foreign investors sold $4.5 billion of Canadian equities, as share prices continued to weaken, but acquired $2.7 billion worth of mainly Canadian government bonds on the secondary market.

Gross domestic product by industry

After a strong start to the quarter economic activity levelled off, edging up 0.1% in September. However, this latest increase marks the twelfth consecutive monthly advance since the setback triggered by the events of September 11, 2001.

Increased purchases of new and existing housing and higher industrial production offset the weakness in agriculture, finance and retail and wholesale trade.

Demand for new housing continued unabated in the third quarter of 2002, as residential construction surged 5.1%. Housing starts have been above the 200,000 mark for much of 2002, reminiscent of the late 1980s housing boom. The strength in housing starts was concentrated in multiple dwelling units in British Columbia and central Canada. The construction feeder industries in the manufacturing sector benefited from higher residential construction levels. Producers of wood products, glass, glass products, gypsum products, heating and ventilation equipment all increased output.

The resale housing market remained below its first quarter peak, although real estate agent and brokerage activity picked up in the later part of the quarter. Wholesalers and retailers of furniture posted gains in the third quarter, as homeowners filled in their new living spaces. Total retailing activity was up only slightly in the third quarter, depressed by lower purchases at clothing and department stores.

Motor vehicle manufacturers ramped up production levels for the third consecutive quarter, in response to higher car sales. New motor vehicle sales in Canada and the United States have both been historically high since the continuation of generous incentive programs introduced over the past two years. Manufacturers of heavy trucks increased output levels in excess of 50% in response to increased demand from US fleet owners. Fleet operators accelerated their purchases of heavy trucks ahead of new US emissions standards on diesel engines that came into effect October 1.

Increased activity was reported in the health care, education and public administration sectors, generating a major source of employment. Output of the provincial public administration industry rose in the third quarter after a strike-induced drop in the second quarter.

Detailed analysis and tables

More detailed analysis on today's releases from the national accounts, including additional charts and tables, can be found in the third quarter 2002 issue of Canadian economic accounts quarterly review, Vol. 1, no. 2 (13-010-XIE, free), now available on Statistics Canada's website (). From the Our products and services page, under Browse our Internet publications, choose Free, then National accounts.

Products, services and contact information

National economic and financial accounts

Available on CANSIM: tables 378-0001, 378-0002, 380-0001 to 380-0015, 380-0031, 380-0033 to 380-0035 and 382-0006.

Information on methods and data quality available in the Integrated Meta Data Base: survey numbers, including related surveys, 1804, 1901 and 2602.

The third quarter 2002 issue of National income and expenditure accounts, quarterly estimates (13-001-XPB, $44/$145 and 13-001-XIB, $33/$109) will be available soon.

Detailed printed tables of unadjusted and seasonally adjusted quarterly income and expenditure accounts (13-001-PPB, $50/$180), financial flow accounts (13-014-PPB, $50/$180) and estimates of labour income (13F0016XPB, $20/$65), including supplementary analytical tables and charts, are now available.

At 8:30 am on release day, the complete quarterly income and expenditure accounts, financial flow accounts, and monthly estimates of labour income data sets can be obtained on computer diskette. The diskettes (13-001-DDB $125/$500, 13-014-DDB $300/$1200 and 13F0016DDB $125/$500) can also be purchased at a lower cost seven business days after the official release date (13-001-XDB $25/$100, 13-014-XDB $60/$240 and 13F0016XDB $25/$100). To purchase any of these products, contact the client services officer (613-951-3810; iead-info-dcrd@statcan.gc.ca), Income and Expenditure Accounts Division.

For more information, or to enquire about the concepts, methods or data quality of this release, contact the information officer (613-951-3640), Income and Expenditure Accounts Division.

Canada's balance of international payments

Available on CANSIM: tables 376-0001 to 376-0017 and 376-0035.

Information on methods and data quality available in the Integrated Meta Data Base: survey numbers, including related surveys, 1533, 1534, 1535, 1536 and 1537.

The third quarter 2002 issue of Canada's balance of international payments (67-001-XIB, $29/$93; 67-001-XPB, $38/$124) will be available soon.

For more information, or to enquire about the concepts, methods or data quality of this release, contact Arthur Ridgeway (613-951-8907), Balance of Payments Division.

Gross domestic product by industry

Available on CANSIM: tables 379-0017 to 379-0022.

Information on methods and data quality available in the Integrated Meta Data Base: survey numbers, including related surveys, 1301 and 1302.

The September 2002 issue of Gross domestic product by industry (15-001-XIE, $11/$110) will be available in December. A print-on-demand version is available at a different price.

To purchase data, contact Yolande Chantigny (1-800-887-IMAD; imad@statcan.gc.ca). For more information, or to enquire about the concepts, methods or data quality of this release, contact Jo Ann MacMillan (613-951-7248; joann.macmillan@statcan.gc.ca), Industry Measures and Analysis Division.

New sources and methods publication

Gross domestic product by industry: sources and methods (15-547-XIE, free), a new reference manual, is now available. This document describes in detail the concepts, definitions, data sources and statistical methods underlying the GDP by industry series.

For more information on this manual, contact Erika Young (613-951-3631; erika.young@statcan.gc.ca), Industry Measures and Analysis Division.

Quarterly National Balance Sheet Accounts and International Investment Position to be released

The National Balance Sheet Accounts and the International Investment Position, currently released on an annual basis, will start to be published quarterly in June 2003. This change will mean that a more complete set of accounts will be available each quarter, providing a more timely measure of the net worth of Canadians and allowing a more complete analysis of the asset and debt structures of the sectors of the Canadian economy.

To facilitate the move to quarterly data, the annual data for 2002 that normally would have been published in March 2003 will be released in June 2003. At that time, quarterly time series for the National Balance Sheet and the International Investment Position will be released going back to 1990.

Annual Foreign Direct Investment series will be released in March 2003.

Additional details on the release of these data will be posted on Statistics Canada's website () in February 2003.