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Gross domestic product by income and by expenditureGross domestic product by income and by expenditure note to readers Fourth quarter 2006The economy gained momentum throughout the fourth quarter of 2006, closing the year with 0.4% growth in December. For the quarter as a whole, the pace of economic activity eased slightly. Real gross domestic product (GDP) was up 0.4% in the fourth quarter following an increase of 0.5% in the second and third quarters. Growth was largely driven by higher personal expenditure and the strengthening of exports. However, these gains were dampened by the draw-down of non-farm inventories. The economy advanced 2.7% over the year. Chart B.1 Final domestic demand continues to outpace GDP Chart B.2 Contributions to percent change in GDP, fourth quarter 2006 International tradeWith a slight decline in the Canadian dollar over the fourth quarter, export growth was up 1.2%, following a 0.9% increase in the third quarter. This was mainly due to growth in exports of goods (+1.2%). Exports of services, up 0.7%, also contributed to growth, though to a lesser extent. Chart B.3 Automotive products drive exports Automotive products (+7.7%) primarily accounted for the increase in exports of goods. This sector has picked up after the third quarter slowdown, related to protracted plant closures. Other consumer goods and machinery and equipment, up 9.5% and 1.3% respectively, also contributed to export gains in the quarter. The growth in transportation (+3.2%) and travel (+1.2%) services were partly offset by a decline in foreign sales of commercial services (-0.9%). Foreign sales of energy products put a damper on export growth; they were down (-2.8%), which reflected a 12% drop in exports of petroleum and coal products. Imports were largely flat over the fourth quarter (-0.1%). Imports of services grew by 0.7%, though this was counterbalanced by a downturn in imports of goods (-0.3%). Growth in imports of services was boosted by the Canadian demand for foreign travel (+2.1%) and transportation services (+1.4%). The drop in imported goods may be mainly ascribed to automotive products (-2.7%) and energy products (-5.8%). Offsetting factors included growth in imports of machinery and equipment (+0.9%) and other consumer goods (+2.1%). Personal expenditurePersonal expenditure on consumer goods and services advanced 0.8%, but at a slower pace than over the first three quarters of 2006. The increased spending was mainly due to higher outlays on services (+1.2%) and durable goods (+1.0%), though it was tempered by reduced spending on non-durable goods (-0.2%). Chart B.4 Services support the growth in personal expenditure Growth in spending on services was primarily spurred by financial and legal services (+2.0%). This increase is mainly attributable to expenditures related to mutual funds, as well as commissions on stock and bond transactions. Increased expenditure on restaurants and accommodation services (+1.7%) also contributed significantly to strong spending on services. Spending on purchased transportation was up sharply (+2.7%) compared to 0.4% in the previous quarter, led by air transport (+4.1%). This was the strongest increase recorded since the end of 2003, when the industry rebounded from a drop in air travel caused by publicized cases of SARS. Growth in expenditure on durable goods was mostly attributable to strong demand for new and used motor vehicles (+1.6%). This resulted from increased purchases of new trucks and vans, whereas spending on new cars and on used motor vehicles were down. Milder temperatures in Central and Eastern Canada in the fourth quarter also contributed to a drop in the consumption of electricity and of other fuels, while natural gas consumption was on the rise as Western Canada experienced colder temperatures. Investment in inventoryNon-farm inventories were down $748 million in the fourth quarter, marking the first drop in ten consecutive quarters. Manufacturers and retailers substantially reduced inventories of non-durable goods. Inventory run-down, especially significant in automotive products, occurred against a backdrop of increased exports and consumer demand for these types of products. Chart B.5 Wholesalers and retailers liquidate inventories The economy-wide inventory-to-sales ratio in real terms fell to 0.666 in the fourth quarter, from 0.674 in the third. Investment in plant and equipmentBusiness investment in plant and equipment slowed in the fourth quarter (+1.5%), largely sustained by strength in investment in non-residential structures (+2.5%) as a result of strong investment in engineering structures (+3.4%). Growth in Canadian business investment in this area has been ongoing for the last 16 quarters. The pace of business investment in machinery and equipment slowed considerably (+0.6%), the weakest growth recorded in 6 quarters. Expenditures were up on automobiles (+2.2%), trucks (+0.9%), other transportation equipment (+5.0%) and software (+4.4%). These gains were offset by a year-end decline in investment in industrial machinery (-1.3%), as well as computers and other office equipment (-0.2%) and telecommunications equipment (-1.6%). Investment in residential constructionInvestment in residential structures edged up (+0.1%) following a third-quarter drop of 1.8%. This turnaround was largely driven by a pick up in renovations activity (+2.2%), as reflected in the strong demand for renovation permits. Renewed activity in the resale market was reflected in a 1.9% rise in ownership transfer costs, which were down 3.4% in the third quarter. Chart B.6 Housing investment shows signs of recovery The decline in value of new housing construction (-2.0%) slowed slightly in the fourth quarter compared to the third quarter (-3.3%). Growth in the number of housing starts in the fourth quarter provides a signal of renewed investment in residential construction. After edging down in the third quarter, housing starts were once again on the rise, 222,000 units having been recorded in the fourth quarter as opposed to 228,000 and 220,000 in the second and third respectively. This growth was due entirely to the increase in multiple dwelling construction starts. Labour income (in nominal terms)Labour income strengthened in the fourth quarter of 2006, growing by 1.5%, compared to 1.1% in the previous quarter. Wages and salaries advanced 1.5%, equivalent to the average over the past seven quarters. Strength in earnings was supported by a 1.7% increase in wages and salaries in the service industries. Significant gains were made in the financial, insurance and real estate sectors, as well as in the professional and personal services industries. Corporate profits (in nominal terms)Corporate profits advanced 0.6% in the fourth quarter, considerably slower than the exceptional growth (+3.0%) in the third quarter. The motor vehicle and parts as well as the paper and wood products manufacturing industries were major contributors to growth in the fourth quarter. Strong profits in construction, telecommunications and transportation also contributed to gains. An improvement in aircraft load factors gave a boost to profit growth within the transportation industry over the fourth quarter. Insofar as the refund of amounts retained during the softwood lumber proceedings have not been recorded as operating income for the year, growth in profits seems to portend renewed activity in this industry. Please see Softwood Lumber Agreement between Canada and the United States: National Accounts treatment to understand how the softwood lumber rebates are being treated in the Canadian System of National Accounts. Corporate profits were dampened by both lower demand for oil and gas and lower prices, a situation which hindered gains in the energy sector. Government (in nominal terms)Corporate income tax liabilities reached a peak of $57 billion during the quarter, increasing $4.6 billion (+8.8%) in part reflecting tax owing on refunds of softwood lumber duties levied by the United States since 2002. Resumption of strong growth in personal income taxes marked the end of the higher federal refunds related to fiscal amendments implemented late in 2005. The rise in government total revenues of $11 billion (+1.9%) was offset somewhat by a drop in its investment income (-$2.9 billion), resulting from lower provincial government natural resource royalties. Chart B.7 The surplus of governments expands Sector accounts (in nominal terms)Personal disposable income grew by 1.1% and the saving rate rose in the fourth quarter. The personal sector deficit (net borrowing position) narrowed. The corporate sector’s position as net lender to the rest of the economy strengthened in the fourth quarter. With undistributed earnings up in the quarter, partly reflecting the repayment of softwood lumber duties to Canadian producers, corporate net saving advanced for the second straight quarter. Government surplus (net lending position) expanded in the fourth quarter. This gain mainly reflected growth in income, in particular tax revenue from corporations and individuals. Economy-wide pricesEconomy-wide prices, as measured by the GDP chain price index, were up 0.3% over the quarter, 0.5% if energy is excluded. This marks the fourth consecutive quarter in which energy prices moderated economy-wide price index growth. Chart B.8 Energy moderates increase of economy-wide
prices These price increases reflect the steady rise in the cost of personal expenditure on consumer services (+0.7%), residential construction (+1.4%), as well as renewed growth in the prices of machinery and equipment (+1.1%). Increasing equipment prices are due in part to the weakening of the Canadian dollar against the U.S. dollar. The cost of government current expenditure on goods and services rose 0.8%. This coincides with strong growth in wages and salaries. Year-end reviewReal GDP grew by 2.7% in 2006, a slight deceleration from 2005, while final domestic demand was up 4.5%. Consumer spending and non-residential investment accounted for most of the growth in 2006. Spending on durable and semi-durable goods helped boost imports of consumer goods while the personal sector continued in its role as a net-borrower in the economy. Overall, inventory accumulation was slower than that of 2005. Personal expenditureConsumer spending was the leading contributor to real GDP growth in 2006 advancing 4.1%, its best performance since 1997. A solid first quarter helped establish strong annual growth in expenditures on both durable (+6.8%) and semi-durable goods (+7.2%). Declining prices in both of these groups encouraged purchases. Significant gains were also registered in purchases of services (+4.2%). Outlays on durable goods outpaced their strong performance of 2005 as many consumers continued to favour big ticket items. Motor vehicles were an exception, recording a moderate increase in expenditures (+2.1%). Canadians were busy improving their home environment in 2006. While growth in new housing construction decelerated in 2005, higher renovation spending continued to influence spending habits. Purchases of furniture, carpets and other floor coverings, of household appliances and of recreational, sporting and camping equipment (such as consumer electronics and recreational vehicles) all registered record double-digit increases from 2005. Spending on semi-durable household furnishings such as lamps and glassware rose 6.7% over the same period. Chart B.9 Consumers continue to invest in home improvements Canadians were also busy updating their wardrobes as sales of apparel and footwear grew at record rates. Outlays on men’s and boy’s clothing (+7.8%) and footwear (+8.9%) rose at twice the pace of the previous year. Growth in women’s, girl’s and children’s clothing was a comparable 8.1%. Spending on non-durable goods slowed considerably in 2006 gaining only 1.3%. Consumption of electricity, natural gas, and other fuels declined as milder weather tempered demand for heating fuels and electricity. In the services category, purchased transportation grew 4.1% in 2006 as Canadians flocked to airlines. Spending on air transport (+6.3%) matched its 2005 growth as the pick up in air traffic continued from a strong performance in 2004. Canadians’ travel spending abroad increased 10%, the fourth straight year of stellar growth. Business investmentInvestment continued to be an important contributor to economic growth. Increases in both residential and non-residential investment have accounted for a considerable share of the annual gains in GDP since 2003. Chart B.10 Composition of investment changes Residential investment has recorded strong growth since 2000, peaking at 14% in 2002, but this pace weakened over the last two years. Despite a strong first quarter in 2006, with surging housing starts, growth in residential investment in 2006 decelerated to 2.3%. The value of new housing grew only slightly (+0.5%), partially recovering from a similarly sized decline the year before. Canadians continued to make home improvements in 2006, driving up the value of renovations (+7.0%) to existing structures and bolstering total residential investment. Renovations accounted for a significant proportion of total investment in residential structures as spending on renovations experienced the eighth consecutive year of strong positive growth. Non-residential investment was the main contributor to investment’s strong positive impact on GDP in 2006. Business investment in non-residential structures was buoyed by a 14% increase in engineering investment. The private and public investment survey reported substantial investment growth (in nominal terms) in the mining, oil and gas extraction sector. This was principally concentrated in non-conventional oil and gas extraction where investment nearly doubled in 2006 as considerable infrastructure was added to the Alberta oil sands. Business investment in machinery and equipment was 8.0% higher in 2006, largely as a result of strong growth in computers and other office equipment, software, telecommunications equipment, trucks and industrial machinery. Chart B.11 Technology investment gets second wind InventoriesNon-farm business inventories accumulated for the year, albeit at about three-quarters the pace of 2005 due to a draw-down in the last quarter of 2006. There was a slower build up of manufacturing inventories from 2005 especially durable goods. Wholesale inventory accumulation was stronger in 2006, led by increases in machinery and equipment. Retail inventories were also stronger, led by durables. Other non-farm inventories were drawn down in 2006, after a notable accumulation in 2005. Business investment in farm inventories slowed in 2006. With the reopening of the U.S. border to Canadian live cattle in July 2005, cattle inventories have continued to decline. In the crop sector, strong exports of wheat and canola, coupled with lower grain and oil-seed production in 2006, contributed to a slow down in inventory accumulation. International tradeImports experienced strong growth for the fourth straight year (+5.2%) in 2006, while exports increased only 1.3%. In nominal terms, the value of Canadian exports and imports reached record levels in 2006, with the nominal trade balance falling to its lowest point in seven years partly reflecting lower energy export prices. Chart B.12 Growth in imports continues to outpace that of exports Export growth was hindered in 2006 by lower demand for forestry and automotive products as demand from Canada’s largest trading partner, the United States, slumped. Export growth was strongest for agriculture and fish products (+5.0%) and energy (+4.5%), the former of which continued to benefit from the recent resumption of cattle exports to the United States and new markets for wheat and canola. Energy exports, accounting for the majority of export growth, benefited from large gains by petroleum exporters, but were held back by falling demand for natural gas after unseasonable temperatures in 2006. The largest component of exports, machinery and equipment, experienced moderate 3.0% growth in 2006, bolstered by new markets for aerospace products. Imports recorded gains across the board with the exception of energy (-8.5%) and forestry (-7.3%), each of which contracted significantly. Machinery and equipment continued its solid growth in 2006 (+8.8%) following a strong three-year average (+10%). Similarly, imports of consumer goods such as household furnishings, apparel, footwear, and consumer electronics grew 9.1%, the largest increase in four years, as domestic demand for durable and semi-durable goods skyrocketed. Corporate profits (in nominal terms)Corporation profits cooled in 2006, after double-digit growth in 2004 and 2005, but still exhibited a healthy increase of 5.7%. Unlike the stellar growth recorded in the previous three years, profits of the oil and gas extraction industry and petroleum and coal products manufacturers grew only marginally in 2006, contributing to the slower growth of corporation profits before taxes. The wholesale and retail industries as well as the financial sector led the pack in 2006 in terms of gains in corporation profits. Wholesalers of motor vehicles, building materials, and machinery and equipment saw considerable growth and retailers benefited from strong consumer spending. The profits of motor vehicles and parts manufacturers dropped in 2006 as exports slid throughout most of the year, with some strength in the last quarter. The wood and paper industry also recorded declining profits. Despite these declines, profits of manufacturers were relatively unchanged from the previous year as manufacturers of computers and electronic products, of primary metal, and of non-metallic mineral products reaped the benefits of higher demand or commodity prices. Both chartered banks and insurance carriers contributed to the profit gains of the financial sector in 2006. Labour income (in nominal terms)Labour income rose by 6.1% in 2006, slightly more than the 5.9% increase in wages and salaries. Supplementary labour income was up by 7.1%, pushed by a large special payment made to reduce an actuarial deficit of a government employer sponsored pension plan. The unemployment rate has been on a downward trend reaching its lowest point in 30 years as 2006 saw strong job creation in a number of Canadian industries. Alberta posted the strongest gain in wages and salaries (+13%), followed by British Columbia (+8.3%) and Saskatchewan (+7.3%). Wages and salaries growth exceeded the overall increase of 5.9% in the mining and oil and gas extraction, construction, and finance, insurance and real estate industries. Manufacturing posted the lowest increase in 2006, rising 1.3%. Accrued net farm income (in nominal terms)Accrued net farm income declined considerably from 2005. Higher receipts in the crop sector did not offset lower livestock revenues, rising input costs and declining program payments. Following a bumper crop in 2005, crop receipts were boosted by increased deliveries of grain and oilseeds (which drew down inventories) and from increasing prices in the second half of 2006. Livestock revenues fell as lower hog revenues, driven by price declines, more than offset higher cattle and calf receipts. Program payments were down from their record level in 2005 with the phasing-out of several special programs. Sector accounts (in nominal terms)While the personal saving rate edged up to 1.8% in 2006, household non-financial capital acquisitions including investment in residential real estate exceeded personal saving. Consequently, the personal sector continued to be a net borrower from the rest of the economy. Corporations, on the other hand, continue to be a net lender with their strong position supported by growing profits. The government sector continues to lend to the rest of the economy as well, but at a lower level than in 2005. Overall, national saving increased as the Canadian economy continued to lend to non-residents. Economy-wide pricesEnergy prices declined in 2006 helping to curb the pace of economy-wide prices from 3.2% in 2005 to 2.2% in 2006. Of particular note is the price of imports which fell for the fourth consecutive year reflecting continued strength in the Canadian dollar. Import prices have fallen to 97.8% of their 1997 value. Excluding energy, economy-wide prices grew by 2.7%. Chart B.13 Import prices continue to fall as imports grow Statistical tables
Information on methods and data quality available in the Integrated Meta Data Base: 1901 and 2602. |
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