Gross domestic product by income and by expenditure

First quarter 2007

The 2003-2006 revisions of the Income and Expenditure Accounts

Canadian Economic Accounts re-referencing

Housing picked up after elapsed pause

Business investment in residential construction recovered in the first quarter. This was the first increase (+1.8%) since the first quarter of 2006. The value of new housing construction was essentially flat (-0.1%), after three quarters of pronounced declines. However, residential real estate re-sale activity was up sharply while renovation activity remained firm.

Chart B.1 Residential investment picked up

New housing prices were up slightly and steady mortgage rates kept housing affordable. A healthy increase in the resale market reflected in strong ownership transfer costs (+6.7%), which includes real estate commissions, helped boost the housing market.

An understated workhorse has been renovation activity. It was up 1.9% again this quarter after maintaining average growth of 1.4% over the last 4 quarters. Renovation activity has steadily increased its share of investment over the last few years, and now accounts for 34% of total residential investment (in current dollars). Sustained upgrades on current properties also drove up profits for retailers in home improvements.

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Business investment on non-residential structures slowed

Having registered a healthy string of quarterly increases of 2.5% or more over the last two years, business investment in non-residential structures slowed this quarter (+1.3%). This occurred despite a 2.5% surge in investment in buildings, such as office buildings, factories and warehouses.

Chart B.2 Business investment falters

Investment in machinery and equipment declined 1.5%, the first decline since 2002. Purchases of machinery and equipment have been a source of strength over the last four years, but have slowed from their peak in 2005. The main contributors were declines in industrial machinery, trucks, and automobiles. These were partly offset by increases in computers and other office equipment, other transportation equipment, and furniture.

Weak investment in machinery and equipment was also reflected in imports of machinery and equipment which declined 2.0% this quarter, the first quarterly drop since 2003.

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Inventories accumulated

Business inventories (excluding farm inventories) increased $2.8 billion in the quarter. Durable goods, especially fabricated metal, non-electrical machinery, and electrical and electronic products were built up in manufacturers’ inventories, while wholesalers accumulated non-durable goods.

Chart B.3 Manufacturing and wholesale inventories accumulate

Automotive exports were partly drawn from inventories as production remained essentially flat. Both retailers and wholesalers saw a drawdown in motor vehicles which began last quarter with increased demand for automotive products across the border. Also, imports of automotive products were up 2.1%.

Energy inventories also accumulated in the first quarter.

The economy-wide stock-to-sales ratio remained at 0.66, leaving sufficient inventories to satisfy 60 days of sales at current prices.

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Modest growth in exports

Merchandise exports eased (+0.5%), continuing the moderate growth posted over the last two quarters. Foreign sales were largely constrained by declines in forestry products (-6.3%) and industrial goods and materials (-0.5%). The Canadian dollar lost ground against the U.S. dollar, depreciating 2.8% in the quarter.

Increased demand for machinery and equipment and for automotive products contributed most to export growth. Increased foreign demand for energy products (+1.7%), as well as agriculture and fish products (+1.5%) also helped boost exports.

Exports of machinery and equipment were strong this quarter (+2.0%), after slowing considerably last quarter, but still off the quarterly pace registered in most of 2005.

Foreign demand for automotive products was up 2.3% this quarter, on top of the 7.4% increase posted last quarter, reversing the quarterly declines registered throughout most of 2006.

Chart B.4 Automotive products sustain export growth

A bright spot on the imports side was the increase in industrial goods and materials, up 2.2% after the last two quarterly declines, returning to levels set in the first half of 2006.

Export of services increased 0.9%, spurred by growth in transportation services, which have now posted three consecutive solid quarterly increases. Exports of travel services registered another decline, increasing only once in the last nine quarters.

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Consumer spending remained steady

Personal spending on goods and services continued to support the economy, advancing at a steady pace (+1.0%). Purchases of durable goods, which recorded average quarterly growth of over 2% throughout 2006, grew 1.6% in the first quarter. Purchases of semi-durable goods picked up 1.9% after weak growth last quarter (+0.5%). Retail sales in many sectors experienced strong quarterly growth.

In particular, spending on clothing and footwear jumped 2.4% this quarter. As a result, profits in clothing and general merchandise stores were among the highest in the retail sector.

Spending on furniture, carpets and other floor coverings (+2.7%), and household appliances (+2.1%), grew substantially this quarter, stimulated by increased activity in the housing market.

Chart B.5 Consumers continue to spend on home improvements

Consumer expenditure on new and used motor vehicles came to a halt in the first quarter (-0.3%). Expenditures on motor vehicle repairs and parts also fell, and spending on motor fuels and lubricants was flat. Purchased transportation slowed considerably (+0.5%) after spiking last quarter (+2.6%), and spending on communications remained flat.

Consumption of leisure-related items, especially recreational, sporting and camping equipment (+4.7%) and reading and entertainment supplies (+3.3%) jumped this quarter.

Spending on medical care and health services was up 1.6%, returning to the pace recorded in mid-2006.

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Personal income registered strong growth

Personal income rose 2.0% helped by strong increases in labour income, farm income, and net income from non-farm unincorporated business, including rent.

Labour income increased 2.0%, up from the last quarter (+1.6%) as wages and salaries increased in both goods and service producing industries. However, labour income also reflected a Quebec government pay equity settlement, and a contribution from the Newfoundland and Labrador government to the Public Service Pension Plan. Excluding these special payments, labour income grew 1.6%. (The price impact on government current expenditures was about 1%. If the pay equity and pension adjustment were excluded, the growth rate of current dollar government expenditure would change from 2.0% to 1.0%. The growth of the implicit price of government expenditure would change from 1.3% to 0.4%).

The wage bill was particularly strong in mining and oil and gas extraction, and in health care and social assistance. Employment growth was also strong this quarter.

Farm income increased this quarter, boosted by strong deliveries and higher grain and oilseed prices. Unincorporated business net income including rent was up 1.8%. Growth in self employment was also strong.

Growth in income outpaced personal sector outlays, and personal disposable income expanded 2.1% this quarter. Personal saving has now grown significantly for two quarters in a row. The personal saving rate rose to 2.6% compared to 2.2% last quarter.

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Corporate profits surged

Corporate profits posted substantial growth in the first quarter (+3.1%), a pace not seen since the last quarter of 2005. Spurred by earnings in the petroleum and coal products manufacturing sector, partly resulting from rising commodity prices, as well as by increased profits in the retail sector, corporate profits in non-financial industries advanced 4.7%.

Dampening overall corporate profits were declines posted by financial corporations (-4.2%), after a climb last quarter (+1.4%), pulled down by lower profits earned by life insurers. Bank profits posted a decline of 2.3%.

In the first quarter, corporate sector income returned to mid-2006 levels. Last quarter, corporations received refunds of over $5 billion USD from softwood lumber duties levied by the United States, which had caused a significant increase in interest, dividend and miscellaneous income (+29%).

Total saving for all sectors was up 2.9% following two quarters of decline, as higher personal saving offset reduced corporate saving.

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Statistical tables

• Table B.1 Gross domestic product, income-based, current prices and quarterly percentage change
• Table B.2 Gross domestic product, expenditure-based, current prices and quarterly percentage change
• Table B.3 Real gross domestic product, expenditure-based, quarterly percentage change
• Table B.4 Real gross domestic product, expenditure-based, annualized percentage change
• Table B.5 Contributions to percentage change in real gross domestic product, expenditure-based
• Table B.6 Gross domestic product, implicit chain price indexes

Information on methods and data quality available in the Integrated Meta Data Base: 1901 and 2602.