Canadian economic accounts

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The economy slowed in the second quarter as real gross domestic product (GDP) advanced 0.5%, following a robust 0.9% increase in the first quarter. This slower growth reflected reduced but sustained growth in consumer spending and business investment in plant and equipment as well as a cooling in the housing market.

Economic activity in June was essentially unchanged from May, as the production of goods declined, offsetting gains in service industries. The economy grew by  0.2% in April, followed by a 0.1% increase in May.

A more detailed analysis is available in Canadian Economic Accounts Quarterly Review.

Service-producing industries continued to record strong growth (+0.8%) in the second quarter, as activities in retail and wholesale trade, finance, insurance and real estate all advanced.

Output of goods-producing industries continued to soften, decreasing 0.3% in the second quarter, partly reflecting waning foreign demand for Canadian products, as exports declined for the second consecutive quarter.

Output in the manufacturing sector as well as in the mining and oil and gas extraction sector decreased. These declines were partially offset by a gain in the output of utilities. Industrial production (the output of factories, mines and utilities) fell 0.6%. In the United States, the index of industrial production rose 1.5%, with all three sectors showing strength.

Rising domestic spending on final goods and services continued to drive the economy forward. However, final domestic demand slowed as the first quarter jump in residential construction was not sustained in the second quarter.

Continued strength in business investment in plant and equipment, particularly in machinery and equipment and engineering construction, and consumer expenditure, were behind most of the second quarter GDP growth. A surge in investment in telecommunication equipment and a jump in computers and other office equipment purchases accounted for much of the increase. Consumer spending, while having eased from the first quarter, increased at a moderate pace.

A large business inventory investment was also evident in the second quarter.

Economy-wide prices, as measured by the chain price index for GDP, fell 0.2% in the quarter (down 0.1% excluding energy). However, aggregate prices rose 0.3% in the second quarter when adjusting out the impact of a special pension contribution in the first quarter, which had the effect of reducing the price index for government goods and services in the second quarter. This reflected firmer prices for consumer non-durable goods and services as well as in construction, which were only partly offset by continuing declines in goods export prices. Excluding energy and the special pension payment, economy-wide prices advanced 0.5%

The economy grew at an annualized rate of 2.0% in the second quarter, a sharp deceleration from the 3.6% pace set during the previous quarter. Growth in the US economy slowed to 2.9% in the second quarter, in tandem with the Canadian economy.

Residential investment declines

Output in the residential construction and real estate agents-brokers industries retreated, as investment in residential structures declined 1.3% following a 3.0% increase in the first quarter.

Much of the strength in new residential construction in the first quarter likely resulted from mild winter weather conditions, which allowed builders to get an early start to the season. This activity returned to more normal levels in the second quarter. Declines in resale activity also contributed to the quarterly decline in overall residential investment.

Business investment in plant and equipment eases

Businesses continued to invest in plant and equipment, though at a slower pace (+1.8%) than in the first quarter. Capital expenditure on machinery and equipment increased across the board with the exception of automobiles and other transportation equipment which posted significant declines. Business engineering construction activity accelerated while building construction declined.

Consumer spending slows

While consumer spending slowed slightly in the second quarter (+1.0% compared to +1.3% in the first quarter), it continued to significantly support growth in the economy. The retail trade industry advanced at a good clip (+2.0%), as many consumer expenditure components recorded strong growth. Consumption of non-durables accelerated, led by food and beverages as well as motor fuels.

Consumer expenditure on durable goods decelerated sharply, as purchases of new trucks and vans declined on the heels of a significant increase in the first quarter. Weakened spending on furniture and household appliances reflected, in part, the dip in the housing market. Expenditure on recreational, sporting and camping equipment remained strong.

Exports decline for a second consecutive quarter

Exports fell 0.3%, adding to the decline in the first quarter. This slump in foreign demand was reflected in manufacturing output, which weakened further in the quarter. Production slid among export driven manufacturing industries including motor vehicles and wood products manufacturers, as well as selected non-durable industries.

Automotive exports (-5.1%), which had increased significantly in the last half of 2005, fell for a second consecutive quarter. Likewise, exports of agricultural and fish products, which performed well throughout 2005, declined 1.8%. Exports of forestry products posted a second significant decline. Energy was the only group to register a significant increase in exports (+5.8%), following a modest increase in the first quarter.

Imports rebounded following a weak first quarter, as the Canadian dollar appreciated. The strength in business investment accounted for much of the increase, as imports of machinery and equipment advanced.

Likewise, retailers and wholesalers continued to snatch up cheaper foreign goods. Imports of crude petroleum products and automotive products also picked up in the second quarter.

Non-farm inventory accumulation picks up steam

Over $16 billion was added to inventories in the second quarter, up from the $11 billion build-up in the first. Non-farm inventory accumulation picked up steam, despite lower production in manufacturing.

Wholesale inventories of durable goods piled up, in line with sagging foreign demand. Manufacturers also added to their stocks at a faster clip in the quarter.

Retail inventories posted a third consecutive quarter of strong accumulation. Both motor vehicle and other durable goods inventories were built up, reflecting softer consumer demand in these areas.

Labour income remains strong, corporate profits edge ahead

Current dollar labour income remained strong, despite the sharp deceleration from the first quarter. (The jump in the first quarter was due to a large special payment to reduce an actuarial deficit of a government employer-sponsored defined benefit pension plan.) Removing the effect of this special payment, the first and second quarter growth in labour income would be 1.3%.

Wages and salaries grew by 1.4% in the first quarter and 1.3% in the second quarter. The strength in the second quarter was driven by the services industries.

Corporate profits in nominal dollars edged ahead 0.4% in the second quarter, following a sharp 3.7% decline in the first, which arose from lower export prices for energy. The sluggish growth in the second quarter was in line with the second consecutive decline in the output of the manufacturing sector. In addition, profits of financial industries declined 1.6%.

GDP by industry, June 2006

The Canadian economy remained stable in June, after increasing by 0.2% in April and 0.1% in May. The production of goods, which has been showing signs of weaknesses since the beginning of the year, declined 0.2% in June. Service industries gained 0.1%.

Oil and gas extraction, the manufacturing of chemical products, wholesale trade as well as construction recorded declines, while the manufacturing of motor vehicles and parts, of fabricated metal products, and forestry and logging posted the largest increases.

The energy sector declined for a third consecutive month, falling 0.8% in June. This loss was largely attributable to lower oil and gas extraction (-3.1%), particularly of natural gas. Declining prices and a high level of inventories of natural gas were the main factors behind this contraction.

Manufacturing output remained essentially unchanged in June. Of the 21 major groups, 10 boosted their production, accounting for 54% of total manufacturing output. The 0.4% increase in durable goods production was offset by a 0.6% decline in non-durable goods output.

Industrial production, the output of mines, factories and utilities, slipped 0.2%, with utilities reporting the only gain (+1.0%). In the United States, industrial production increased 0.8% in June, with the three sectors posting increases.

Wholesale trade fell 0.5%, with notable weakness in wholesale sales of motor vehicles and parts and of computers and office equipment. Retail trade advanced 0.2% in June. New and used car dealers contributed notably to the reduced growth of retail trade.

Detailed analysis and tables

The new National Economic Accounts module, accessible from the home page of our website, features an up-to-date portrait of national and provincial economies and their structure.

More detailed analysis on today's releases from the national accounts, including additional charts and tables, can be found in the second quarter 2006 issue of Canadian Economic Accounts Quarterly Review, Vol. 5, no. 2 (13-010-XIE, free), which is now available from the Publications module of our website.

Gross domestic product by industry

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

Definitions, data sources and methods: survey numbers 1301 and 1302.

The June 2006 issue of Gross Domestic Product by Industry, Vol. 20, no. 6 (15-001-XIE, free) is now available from the Publications module of our website.

For general information or to order data, contact the Information Officer (toll-free 1-800-887-IMAD; imad@statcan.gc.ca). To enquire about the concepts, methods or data quality of this release, contact Bernard Lefrançois (613-951-3622; bernard.lefrancois@statcan.gc.ca), Industry Accounts Division.

National economic and financial accounts

Available on CANSIM: tables 378-0001, 378-0002, 380-0001 to 380-0017, 380-0019 to 380-0035, 380-0056, 380-0059, 380-0060 and 382-0006.

Definitions, data sources and methods: survey numbers, including related surveys, 1804, 1901 and 2602.

The second quarter 2006 issue of National Income and Expenditure Accounts, Quarterly Estimates (13-001-XIB, free) will soon be available.

Detailed printed tables of unadjusted and seasonally adjusted quarterly Income and Expenditure Accounts (13-001-PPB, $54/$193), Financial Flow Accounts (13-014-PPB, $54/$193) and Estimates of Labour Income (13F0016XPB, $22/$70), including supplementary analytical tables and charts are now available. See How to order products.

At 8:30 a.m. on release day, the complete seasonally adjusted quarterly income and expenditure accounts (13-001-DDB, $134/$535), financial flow accounts (13-014-DDB, $321/$1,284), and monthly estimates of labour income (13F0016DDB, $134/$535) data sets can be obtained on computer diskette.

These diskettes can also be purchased at a lower cost seven business days after the official release date (13-001-XDB, $27/$107; 13-014-XDB, $65/$257; and 13F0016XDB, $27/$107). To purchase any of these products, contact Client Services (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, iead-info-dcrd@statcan.gc.ca), Income and Expenditure Accounts Division.

Table(s).