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Tuesday, February 28, 2006
Canadian economic accounts
Investment spending, exports and personal expenditure all advanced in the fourth quarter, pushing up real gross domestic product (GDP) 0.6%. In December, monthly output was up 0.4%, after increasing 0.2% in November and 0.3% in October.
Real GDP decelerated in the fourth quarter from the 0.9% growth in the third quarter. Domestic spending remained very strong, rising 1.1% in the fourth quarter. However, an increasing share of this demand was satisfied through imports, which rose 2.7%, keeping GDP growth in check.
Investment and exports again figured prominently in the overall growth. Exports rose 2.3%, following a 1.8% gain during the third quarter, while investment in non-residential construction and equipment rose a further 3.1%.
Both the goods-producing industries (+0.8%) and service-producing industries (+0.7%) contributed to growth in the fourth quarter. Growth in the goods-producing industries, however, slowed down from the 1.3% increase in the third quarter, as output in the mining industry (excluding oil and gas extraction) cooled considerably.
Industrial production (the output of factories, mines and utilities) increased 0.8%, stimulated by manufacturing, mining and oil and gas extraction, while utilities decreased 0.7%, mostly due to lower electricity production. In the United States, the index of industrial production rose 1.4%, bolstered by manufacturing, while mining and utilities receded.
Economy-wide prices, as measured by the chain price index for GDP, rose 1.3% in the fourth quarter, down slightly from the 1.6% increase in the third quarter. A large share of the increase was the result of rising energy prices. Excluding energy prices, economy-wide prices rose 0.7% in the fourth quarter and 0.4% in the third.
The economy grew at an annualized rate of 2.5% in the fourth quarter, decelerating from the 3.5% annualized pace set during the third quarter.
For 2005 as a whole, GDP increased 2.9%, a rate of growth identical to the one registered in 2004, although the sources of strength somewhat differed between the two years.
Investment remains source of strength
Business investment in non-residential structures and equipment continued to climb in the fourth quarter, increasing a further 3.1%, following an equally strong 3.3% performance in the third quarter.
Spending on non-residential structures by business remained strong, growing 2.9%, up slightly from last quarter's increase, due, in large part, to a 3.2% increase in engineering investment.
Investment in machinery and equipment maintained the pace set in the third quarter, rising another 3.2%. Continued strength in investment in computers and other office equipment and in industrial machinery, coupled with an 18.5% increase in other transportation equipment, all contributed to the strong quarterly performance.
This investment activity helped drive up imports, which climbed 2.7%, after an equally strong 2.5% increase in the third quarter. This translated into growth for the wholesale trade sector (+2.0%). Most wholesalers recorded positive results in the fourth quarter, particularly wholesalers of machinery and equipment, motor vehicles, apparel and building supplies.
Strong renovation activity alone kept investment in residential structures (+0.3%) out of negative territory, as the value of new housing construction and ownership transfer costs both fell in the fourth quarter. The value of new housing construction has now fallen for four consecutive quarters; this is the first time this has occurred since the late 1990s. In 2005, residential construction increased 3.3%, well off the 8.3% pace established in 2004.
Inventory accumulation slows but remains strong
A total of $12 billion was added to inventories in the fourth quarter, down slightly from the $14 billion added in the third.
There was a $3.9 billion increase in the inventories of retailers, following a $1.9-billion contraction during the third quarter. This was more than offset by a much slower build up of inventories in wholesale trade and utilities.
Inventories have been accumulating steadily since the third quarter of 2004, with the accumulation split evenly across the manufacturing, wholesale and retailing sectors.
Exports rebound following a poor start in 2005
Widespread growth, including a jump in forestry products, pushed up exports 2.3% in the fourth quarter, following a 1.8% increase in the third. This helped drive manufacturing output up 0.8%, a slightly higher rate than in the previous quarter.
Almost all of the growth in manufacturing output was concentrated in the production of durable goods, particularly machinery (+5.4%), transportation equipment (+2.1%), fabricated metal products (+2.4%) and non-metallic mineral products (+3.6%). The growth in transportation equipment was fuelled by an increase in US demand for trendy Canadian-made motor vehicles. Exports of automotive products rose by more than 7% for a second consecutive quarter.
Exports of forestry products increased for the first time in six quarters, with a gain of 4.9%. A large share of these exports was destined for the US, in part to help with the reconstruction of areas devastated by hurricane Katrina last year.
Another solid gain in labour income and corporate profits
Wages and salaries continued to climb in the fourth quarter as a very tight labour market, particularly in Alberta and British Columbia, exerted upward pressure on wages. Corporate profits received another boost (+3.9%) from higher energy prices, although it was somewhat smaller than the jump (+4.7%) registered in the previous quarter. Profits among retailers, wholesalers and banks were all strong.
Consumer spending accelerates
Growth in consumer spending edged up 0.7% in the fourth quarter. Expenditures on clothing and other semi-durable goods advanced 1.5%, after registering a slight decline in the third.
Purchases of durable goods declined 0.3% in the fourth quarter, the first quarterly decrease in two years. The decline resulted from a 3.5% drop in purchases of new and used automobiles. Even with the fourth quarter decline, annual growth in new and used automobiles sat at 3.3%, well above the 1.9% decline registered in 2004.
GDP by industry: highlights for December 2005
The Canadian economy grew 0.4% in December 2005, after growing 0.2% in November, mostly on the strength of durable goods manufacturing, wholesale trade, construction, and transportation and warehousing. Declines in oil and gas extraction and forestry partly offset the overall growth.
Industrial production (the output of factories, mines and utilities) grew 0.6% in December, mainly on the strength of manufacturing (+0.9%). Utilities edged up 0.1%, while the mining, oil and gas sector declined 0.1%. In the United States, the index of industrial production grew 0.9% in December, pushed up by manufacturing, utilities and mining output.
Manufacturing output rebounded 0.9% in December after declining 0.5% in November. Production increased in 11 of the 21 major groups, these accounting for 70% of this sector's output. The largest increases were recorded by manufacturers of transportation equipment (+0.8%), particularly of motor vehicle parts, which had declined for three consecutive months.
Wholesale trade gained 1.3% in December, pulled up mainly by a sharp increase in motor vehicles. Excluding motor vehicles, wholesale trade remained essentially unchanged. After two consecutive monthly increases, the retail trade sector remained flat in December, due to a decline in sales of new cars.
Construction activities increased 0.7%, driven by continued strength in residential construction (+0.8%), and in engineering, repairs and other construction activities (+0.8%).
The energy sector declined 0.5% in December. A drop in natural gas output offset a strong increase in crude petroleum extraction. Mining activity, however, gained strength from an increase in output of metals and of non-metallic minerals (which include diamonds and potash).
The transportation and warehousing sector grew 0.7%, with most types of transportation services showing increased activities.
The year 2005 was the year of the consumer, as the 4.0% jump in personal expenditure on goods and services was the main contributor to overall growth in real GDP. It was the largest annual increase since 2000, when skyrocketing labour income drove up personal expenditures.
Widespread growth across most expenditure categories, a large first-quarter surge and a sustained growth throughout the year all contributed to this solid performance.
In 2005, growth in investment in non-residential structures reached 6.8%, a large gain from the 0.8% increase in 2004. The opposite was the case for investment in residential structures, which decelerated markedly, with annual growth settling in at 3.3% compared to the 8.3% increase of 2004.
While investment in residential and non-residential structures have taken turns sharing the investment spotlight over the last two years, investment in machinery and equipment was the backbone of the recent three-year surge in investment. Investment in machinery and equipment climbed 10.7% in 2005, its best annual performance since 1997. This was reflected in the 9.1% increase in output of machinery manufacturers, and was partly responsible for the 8.1% surge in wholesaling activities.
The high energy prices were behind a 14% jump in oil and gas exploration. The output of the energy sector, however, increased by only 1.9%, as production difficulties in the tar sands during the first quarter of 2005 hampered oil extraction.
High energy prices also helped boost economy-wide incomes, with much of these earnings reflected in the corporate bottom line, as well as in personal income. In 2005, wages, salaries and supplementary labour income increased 5.4%, the strongest annual increase since 2000. The increase was particularly strong in Alberta and British Columbia.
While 10.7% annual increase in profits in 2005 was well off the 18.7% increase registered in 2004, it represented another year in an unparalleled string of healthy corporate returns that began in 1993. The latest round of increases began in the third quarter of 2003, driven mainly by higher export prices for Canadian energy products, which increased 71% over this same period.
Final domestic demand rose 4.3% for the year. Since 2001, growth in final domestic demand has been on par or has outpaced that of real GDP.
The Canadian dollar's appreciation over the last three years has helped drive import prices down 10%. These declining prices have led to an increase in the demand for imports, as Canadian businesses substitute cheaper foreign goods for domestically produced goods. Consequently, a greater share of our final domestic demand is being satisfied through imports rather than domestic production.
Following a healthy gain in 2004, growth in the manufacturing sector's output was cut in half in 2005 (+2.2%). Manufacturers faced a strong dollar (its highest value against the US currency in more than a decade), high input costs (such as petroleum) and strong international competition. Almost all of the growth was concentrated in the production of durable goods (+4.0%), while output of non-durable goods, more sensitive to international competition, edged down 0.4%, dragged down notably by textiles and clothing.
Detailed analysis and tables
The new National Economic Accounts module, accessible from the home page of the agency's 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 fourth quarter 2005 issue of Canadian Economic Accounts Quarterly Review, Vol. 4, no. 4 (13-010-XIE, free). From the Our products and services page, under Browse our Internet publications, choose Free, then National accounts.
Products, services and contact information
Gross domestic product by industry
Available on CANSIM: tables 379-0017 to 379-0022.
Definitions, data sources and methods: survey number 1301.
The December 2005 issue of Gross Domestic Product by Industry, Vol. 19, no. 12 (15-001-XIE, $12/$118) is now available. A print-on-demand version is available at a different price.
To order data, contact Yolande Chantigny (1-800-887-IMAD; firstname.lastname@example.org). For general information or to enquire about the concepts, methods or data quality of this release, contact Bernard Lefrançois (613-951-3622; email@example.com), Industry Accounts Division.
New sources and methods publication
The new reference manual Gross Domestic Product by Industry: Sources and Methods with Industry Details (15-548-XIE, free) is now available. This document describes in detail the data sources used in the derivation of monthly GDP by industry series. For more information on this manual, contact Erika Young (613-951-3631; firstname.lastname@example.org), 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 fourth quarter 2005 issue of National Income and Expenditure Accounts, Quarterly Estimates (13-001-XIB, $36/$117) will soon be available. A print-on-demand version is available at a different price.
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 am on release day, the complete seasonally adjusted 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, $134/$535; 13-014-DDB, $321/$1284; and 13F0016DDB, $134/$535) 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; email@example.com), 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, firstname.lastname@example.org), Income and Expenditure Accounts Division.