Gross domestic product by income and by expenditure

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First quarter 2008

Real gross domestic product (GDP) edged down 0.1% in the first quarter of 2008, its first quarterly decline since the second quarter of 2003. The economy, which had started to lose momentum in the second half of 2007 as exports declined, stalled in the first quarter due to widespread cutbacks in manufacturing, most notably in motor vehicles. In addition, weather disruptions hampered economic activity in the quarter. Final domestic demand advanced 0.6% in the quarter on the strength of consumer spending. Inventory accumulation eased considerably in the first quarter, after two quarters of large build-ups.

Exports fall

Exports of goods and services fell for the third consecutive quarter, in line with the third consecutive decline in manufacturing output. The 1.1% decline in the first quarter of 2008 stemmed from a sharp decrease in exports of automotive products as  Canadian manufacturers were hampered by a strike at a major supplier of automotive parts in the United States.

Excluding automotive products, exports grew 0.8% in the first quarter. Sales of forestry products abroad declined for a third consecutive quarter, as weakness in the U.S. housing market continued.

Exports of services registered a 2.3% drop, largely due to lower exports of commercial services. Conversely, energy products, with the exception of natural gas, recorded a strong gain in the quarter, reversing the weakness recorded in the last half of 2007.

Exports of travel services registered a third consecutive decline.

Chart B.1
Exports of automotive products down sharply

Imports declined for the first time since the fourth quarter of 2006. The decrease was widespread. Automotive products pulled imports downward corresponding to a drop in motor vehicle inventories. Purchases of other consumer goods from abroad also lost ground. Machinery and equipment imports retreated after three quarters of substantial increases. Both forestry products, and agricultural and fish products fell this quarter, after posting increases throughout most of 2007.

Business investment in machinery and equipment slows

Growth in business investment in machinery and equipment decelerated to 0.3% in the first quarter, moderated by a downturn in industrial machinery investment. This followed three quarters of gains averaging 3.3%. Increases in investment were registered for automobiles and other transportation equipment. Business investment in machinery and equipment has increased by more than 60% since the fourth quarter of 2002, in conjunction with the appreciation of the Canadian dollar.

Chart B.2
Machinery and equipment investment stalls

Inventory accumulation eases

Inventory accumulation eased considerably in the first quarter, after two quarters of large build-ups. The change was most notable for motor vehicle dealers, who significantly reduced their stocks. This accounted for one-third of the difference in total inventory accumulation between the fourth quarter of 2007 and the first quarter of 2008.

Chart B.3
Inventory build-up slows

Manufacturers and wholesalers reduced their inventories, particularly of durable goods, while retail inventories increased marginally. Farm inventories declined for the eighth consecutive quarter as high grain prices continued to spur farmers to reduce their stocks.

Businesses have been accumulating inventories since the third quarter of 2004. The economy-wide inventory-to-sales ratio remained unchanged in the first quarter of 2008, leaving sufficient inventories to satisfy 63 days of sales.

Personal spending moderates

Personal spending grew 0.8% in the first quarter, down from the 1.8% gain in the fourth quarter of 2007. The deceleration was largely due to lower expenditures related to travel abroad, which increased substantially in the last half of 2007. Despite the decline, expenditures related to travel abroad registered their second-highest level ever. Purchases of new and used motor vehicles advanced 7.2%, spurred by widespread sales incentives, low interest financing packages, and the GST rate reduction. It was the largest gain since the fourth quarter of 2001.

Chart B.4
Personal spending on motor vehicles continues to advance

Personal expenditure on furniture, furnishings and household equipment and maintenance posted a fifth consecutive quarterly increase of over 1%. Purchases of electricity declined for a third consecutive quarter.

Despite fewer international visitors to Canada, spending on restaurants and accommodation services advanced on the strength of domestic demand.

Housing investment declines

Business investment in residential structures declined in the first quarter, following five quarters of growth. Transfer costs associated with the resale market decreased for a third consecutive quarter, and new housing construction declined. This was partially offset by an increase in renovation activity.

Business investment in non-residential structures posts gain

A pick-up in business investment in non-residential structures in the first quarter (+0.9%), which followed four quarters of decline, was the result of increases in investment in both buildings and engineering. Government investment in non-residential structures continued a string of increases dating back to 2004, advancing 2.4% in the first quarter.

Corporate profits advance

Corporate profits grew 2.4% in the first quarter, fuelled by energy sector earnings.

Retailers also increased profits as consumer spending continued to advance. Profits in the financial sector weakened, especially bank profits. Manufacturers registered a decline in profits as the industry continued to struggle with difficult market conditions.

Despite the increase in corporate profits, overall, corporate sector income declined. Interest income from abroad fell substantially, resulting in lower corporate savings.

Personal income stays strong

Wages and salaries and supplementary labour income increased 1.5%, a deceleration from the previous quarter. Employment increased in the quarter, as did average weekly earnings. Hours worked, however, registered a much lower gain.

Personal income outpaced outlays and the saving rate increased to 2.8%, up from 1.9% last quarter.

National saving weakens

The national saving rate was the lowest since the first quarter of 2005, as government sector saving was down. Federal government revenues declined, mainly due to the January cut in the GST rate. A second instalment of payments was made for the residential school survivor compensation (970 million dollars) during the quarter. Also, 1.1 billion dollars were transferred to native bands under the James Bay Cree agreement.

Chart B.5
Government saving moves downward

Prices move upward

The price of goods and services produced in Canada advanced 1.3% in the first quarter, boosted by the continued increase in energy prices. This was up from the 0.9% increase registered in the fourth quarter. Excluding energy, prices advanced only 0.2%. Export prices, reflecting the energy gains, advanced sharply (+5.4%). After three quarters of declines, import prices advanced 3.3% as the Canadian dollar depreciated against its U.S. counterpart. Prices for final domestic demand increased 0.5%.

Data 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.