Canadian real GDP rose 0.5% in Q1, equaling the pace of the previous quarter, driven by business investment
June 1, 2012
– Real gross domestic product (GDP) rose 0.5% in the first quarter, the same pace as in the previous quarter. Business investment contributed the most to first-quarter GDP growth. Final domestic demand grew 0.3%. On a monthly basis, real GDP by industry edged up 0.1% in March.
As was the case throughout 2011, business investment continued to fuel growth. Business investment in plant and equipment advanced 1.2%, the ninth consecutive quarterly increase. Housing investment expanded 2.9%, well above the previous quarter's pace of 0.8%. Non-farm business inventories increased in the first quarter.
Consumer spending on goods and services, another main contributor to GDP growth in 2011, slowed to 0.2% in the first quarter of 2012, after a 0.7% gain in the previous quarter.
In the first quarter, final domestic demand advanced 0.3%. Growth in final domestic demand has been slowing since the first quarter of 2011. Average quarterly growth in final domestic demand was 0.5% in 2011, following 1.1% in 2010.
While exports have been increasing since the second quarter of 2011, they remain below the level reached in the third quarter of 2008. Exports grew 0.6% in the first quarter of 2012, after gaining 1.7% in the previous quarter.
Imports rose 1.1% in the first quarter, almost double the pace of the fourth quarter of 2011.
The output of service industries grew 0.5%, while goods production was unchanged. Wholesale trade and construction were the main contributors to overall growth. Manufacturing, the finance and insurance sector, professional services, and health care services also grew, while mining and utilities recorded notable decreases.
Wholesale trade advanced 2.0% on the strength of motor vehicles and parts. Construction increased 1.2%, with gains in residential building construction and in engineering and repair work. Oil and gas extraction edged up 0.1% in the first quarter, as increased crude petroleum production was mostly offset by a decrease in natural gas extraction. Support activities for mining and oil and gas extraction fell 8.2%, as a result of declines in drilling and rigging services. Mining excluding oil and gas extraction decreased, mainly as a result of lower output at potash and at copper, nickel, lead and zinc mines. Utilities declined 1.4%, as unseasonably warm weather contributed to lower demand for electricity and natural gas.
Expressed at an annualized rate, real GDP expanded 1.9% in the first quarter, matching the rate of the previous quarter. By comparison, real GDP in the United States also grew 1.9% in the first quarter.
Real gross domestic product
Business investment in plant and equipment continues to expand
Overall business investment in plant and equipment rose 1.2% in the first quarter. Investment in engineering projects advanced 1.5% and investment in buildings expanded 1.1%. Furthermore, business investment in machinery and equipment grew 1.0%, following two consecutive quarters of decline. This increase was led by business purchases of automobiles (+8.9%), agricultural machinery (+7.0%), and other machinery and equipment (+4.3%). In contrast, there were declines in investment in computers and other office equipment (-7.0%) and in other transportation equipment (-3.1%).
Housing investment grew 2.9% in the first quarter, the fifth consecutive gain. New housing construction increased 3.7% after declining in the previous quarter. Renovation activity (+1.7%) was also up, as were ownership transfer costs related to housing resale activity (+3.6%).
Business inventories continue to increase
Businesses increased inventories by $9.4 billion in the first quarter, $4 billion more than in the previous quarter. Wholesale and retail trade inventories accounted for two-thirds of the gain.
Imports increase once again
Imports rose 1.1% in the first quarter, after increasing 0.6% in the previous quarter. Most major categories of imported goods increased, especially automotive products (+9.2%). Imports of services grew 2.1%, after a 1.3% increase in the previous quarter.
Demand for exports softens
Exports of goods and services grew 0.6% in the first quarter, although the pace of growth slowed from the preceding two quarters. Exports of goods advanced 0.8%, with energy products (+5.9%) contributing the most to the increase. A 4.0% decline in transportation services contributed to the 0.3% decrease in exports of services.
Consumer spending slows
Consumer spending on goods and services edged up 0.2% in the first quarter, slowing from the previous quarter's pace of 0.7%. Purchases of semi-durable goods (+1.1%) and services (+0.7%) both increased. These increases were partially offset by reductions in purchases of durable (-0.1%) and non-durable goods (-1.0%).
Purchases of clothing, footwear and accessories increased 2.3%, the seventh consecutive quarterly increase.
Spending on furniture, carpets and other floor coverings advanced 2.4%, following two successive quarterly declines.
In contrast, spending on transportation and communication decreased 0.3% in the first quarter. A 1.2% increase in purchased transportation was offset by declines in outlays on fuel and lubricants (-2.1%) as well as on motor vehicle repairs and parts (-0.4%).
Economy-wide income expands
Nominal GDP increased 0.6% in the first quarter. Corporate profits fell 2.6% following 4% or more growth in the two previous quarters. Declines in earnings of non-financial corporations were partially offset by increased earnings of financial institutions in the first quarter.
Labour income rose 0.7%, slower than the previous quarter's pace of 1.1%. Growth of wages in goods-producing industries slowed to 0.9% from 2.3% in the previous quarter.
The personal saving rate moved down to 2.9% in the first quarter, and has been on a downward trend since the second quarter of 2010, when it was 6.8%. This was the first time the personal saving rate has been below 3% since 2007.
However, the national saving rate was 7.3%, higher than the 6.5% average quarterly growth recorded throughout 2011. Government revenues were up 2.0% in the quarter, outpacing government outlays, which rose 0.4%. Corporate saving was also up, as corporate outlays were reduced.
Canada's real gross domestic income, a measure of purchasing power, increased 0.3% in the first quarter. Canada's terms of trade, which measure export prices relative to import prices, declined 0.6%.
The price of goods and services produced in Canada edged up 0.2%. Both export prices (-1.6%) and import prices (-1.0%) fell.
The price of final domestic demand increased 0.3%, compared with a 0.8% increase in the fourth quarter of 2011.
Financial flow accounts: Demand for funds up
Total funds raised by domestic non-financial sectors increased to $179 billion (seasonally adjusted at annual rates) in the first quarter, up from $122 billion in the previous quarter. Increased financing in the non-financial private corporations' sector and higher borrowing in other levels of government led the demand for funds.
The financing activity of non-financial private corporations expanded in the first quarter, reversing the previous quarter's decline. Equity and short-term paper issues were the main instruments of finance in the quarter.
Borrowing by other levels of government increased in the quarter, led by provincial government bond issues. Retirements of federal government short-term paper moderated the increase in overall government borrowing.
Household borrowing (in the form of mortgages, consumer credit and loans) was lower in the quarter, marking three straight quarters of decline. Consumer credit and mortgage borrowing fell 3.2% in the first quarter.
Financial institutions increased their bond and short-term paper holdings, while decreasing their holdings of foreign investments.
Gross domestic product by industry, March 2012
Real gross domestic product edged up 0.1% in March after declining 0.2% in February. The output of service industries grew 0.2%, while goods production declined 0.1%. There were increases in manufacturing, construction, wholesale and retail trade, and accommodation and food services. Declines were recorded in oil and gas extraction, the public sector (education, health, and public administration combined), utilities, and the finance and insurance sector.
Manufacturing output increased 0.9% in March after a 0.8% decline in February. The production of durable goods was up 1.0%, notably in the manufacturing of transportation equipment, fabricated metal products and machinery. Non-durable goods production (+0.8%) also rose.
Oil and gas extraction declined 2.4%, with decreases in both crude petroleum and natural gas. Crude petroleum output was particularly affected by maintenance and production difficulties. Mining excluding oil and gas extraction rose 1.8% in March, as output at potash and nickel mines increased following temporary closures in February. This increase outweighed decreases at coal mines in March.
The public sector decreased 0.2% in March as a result of a decline in education services and, to a lesser extent, public administration. Walkouts by some CEGEP and university students in Quebec led to a reduction in the volume of output of education services. Health services edged up.
Wholesale trade (+0.7%) increased for a fourth consecutive month, on the strength of wholesaling of motor vehicles and parts, and petroleum products. Retail trade increased 0.6%, mainly as a result of increases at clothing and clothing accessories stores and at general merchandise stores (including department stores).
Construction rose 0.8%, with all major components (residential and non-residential buildings, engineering and repair work) increasing. The output of real estate agents and brokers grew 1.8% on increased activity in the resale home market.
Utilities decreased 0.9% as the demand for both electricity and natural gas continued to decline partly because of unusually warm weather.
The finance and insurance sector decreased 0.1%, as declines in banks and other credit intermediaries outweighed gains at insurance carriers and security brokerages.