Statistics Canada released Canada’s fourth-quarter Gross Domestic Product (GDP) results early this morning and a marked slowdown was evident. On a quarter-to-quarter annualized basis, total GDP growth was only +0.8%. This compared with +3.0% in the third quarter, +3.8% in the second and +4.0% in the first.

Consumer spending rose strongly in the latest period (+7.4% quarter-to-quarter annualized), as did investment in machinery and equipment (+14.3%). Both had a high-valued Canadian dollar component. Strong consumer spending included money spent on travel, particularly to the United States. This later gets subtracted back out of GDP, because these expenditures are considered to be imports. The high dollar also presented an opportunity to import more (effectively lower-priced) machinery and equipment, particularly with labour markets being so tight in Canada.

Goods exports (-10.4%) weakened considerably, due to the dollar, while imports of goods and services (+10.9%) had a second straight quarter of double-digit increase. Imports of services (which includes travel) were +37.1%.

Another drag on the economy in the fourth quarter was the continuation of an inventory build-up that began in the third quarter. This was mainly in the area of retail and wholesale durable goods.

Leaving out foreign trade and inventory adjustments, final domestic demand in Canada was strong at +6.9%.

Canada vs. U.S.
Canada’s +0.8% annualized growth rate in the fourth quarter was only slightly higher than the +0.6% rate achieved in the United States. While consumption expenditures were a lot higher in Canada, +7.4% versus +1.9%, the U.S. made up the difference in two areas, non-residential investment and trade.

The Income Side of the Economy
The foregoing highlights the expenditure side of the economy. Expenditures are usually presented in constant dollars. There is an income side, as well, that adds up to the same total. However, income measures are usually spoken of in current dollars.

On the income side, corporate profits (measured in current dollars) were +0.5% in the latest quarter versus the third quarter. This was the lowest figure since the decline (-0.2%) in the fourth quarter of 2006. Year-over-year corporate profits before taxes increased +5.8% in all of 2007 versus all of 2006. This was not much different from the year-before figure of +5.0%.

Full Year 2007 versus Full Year 2006
With fourth-quarter results now in, the year-over-year annual GDP growth number is available. Canada’s GDP growth for all of 2007 compared with 2006 was +2.7%. In 2006, it had been almost exactly the same at +2.8%. Consumers made a big contribution to the 2007 level of growth by increasing their spending at a year-over-year rate of +4.7%.

Member Comments