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Friday, August 29, 2003 Canadian economic accountsSecond quarter 2003Real gross domestic product (GDP) edged down 0.1% in the second quarter, as the impacts of SARS, the mad cow disease scare and a stronger Canadian dollar rippled through the economy. This is the first quarterly contraction of economic activity since the third quarter of 2001. Much of the weakness came in April at the height of the SARS outbreak, as the economy posted gains in both May and June. On an annualized basis, GDP advanced 3.1% in the United States in the second quarter, compared with a 0.3% decline in Canada. A slowdown of business investment in inventories held the economy back in the second quarter. The deceleration was centered entirely in the wholesale and retail trade industries. A 0.7% advance of domestic demand boosted imports, especially of consumer goods, machinery and equipment, and automotive products. The mining and utility industries lost ground, and manufacturing output contracted for the third straight quarter as a result of weaker international demand.
Consumer spending (+0.7%) and business investment (+0.5%) both served to shore up the economy in the second quarter, but with less impact than in the first, as both slowed significantly from their first quarter pace. With SARS and the war in Iraq, the number of Canadians traveling abroad (-5.9%) and of non-residents traveling to Canada (-14%) both dropped sharply. Consumer spending on purchased transportation, restaurant and accommodation services was down. Continued strong demand for housing and renovation activity drove up business investment in residential structures, although at a reduced pace from the previous three quarters.
A 0.6% rebound in the volume of exports, after two quarters of contraction, supported the economy in the second quarter. Government spending also propped up the economy through the health care and public administration sectors. The services sector continued to register solid gains, with travel-related industries the only major areas of weakness, as they were severely affected by SARS and the downturn in tourism. Corporate profits fell 8.2%, marking their first decline since the fourth quarter of 2001. This sharp drop stemmed largely from reduced energy prices in the second quarter, which contributed to substantially lower profits in the energy sector. Lower energy prices also accounted for the 0.4% decline in economy-wide prices, as measured by the implicit chain price index for GDP. Slowdown in inventory investment held the economy backWholesalers and retailers built up inventories at a slower pace in the second quarter. More than half of this slowdown was due to motor vehicle inventories. In spite of this, the quarterly economy-wide stock-to-sales ratio increased slightly. Meanwhile, farmers accumulated cattle inventory as a result of the ban on exports related to mad cow disease. Travel-related industries suffer from SARSTravel-related industries were the only major areas of weakness in the service sector, as many Canadians stayed home and international tourists went elsewhere. Air transportation was still recovering from the events of September 11 when the war in Iraq and SARS further hobbled the industry. Large declines in activity were also reported by hotels (-9.5%) and travel agents (-8.5%). Restaurants fared somewhat better, with output down only 1.0%. Car rental agencies (-3.8%) and the scenic sightseeing industry (-5.0%) also posted lower output levels. Services in the arts and entertainment field seemed largely immune, advancing in the second quarter. Consumers continued supportConsumer spending (+0.7%) continued to support the economy in the second quarter, but with less impact than in the first. Labour income growth slowed to 0.3% and job gains were negligible. Growth in spending on services accounted for three-fourths of the increase in consumer spending. Outlays on recreational services increased 2.6%, bolstered by gambling and attendance at spectator sports. Canadian spending on travel outside Canada slipped and foreign spending on travel in Canada dropped sharply. SARS contributed to an 8.4% reduction in spending on air transport and to the second straight decline in spending on restaurants and accommodation services. There were widespread, but modest, increases in spending on goods, with purchases of food and non-alcoholic beverages from stores increasing for the second quarter as people ate out less. Higher growth in furniture and appliance sales reflected continued strong demand for housing. Demand for housing remained strongInvestment in residential structures advanced 0.9%, matching growth of the first quarter. Higher outlays for renovations and ownership transfer costs, including real estate commissions, were partly offset by lower spending on new construction. Housing starts exceeded 200,000 units, still at historically high levels, but were nonetheless below the starts in the previous three quarters. Business plant and equipment spending slowedGrowth in business investment in plant and equipment slowed to 0.4% in the second quarter, down from 1.6% in the first. A 1.3% advance of investment in non-residential buildings was offset by lower investment in engineering structures. Growth in machinery and equipment outlays slowed to 0.6% from 2.1% in the first quarter. Growth in investment in industrial machinery and in computer and other office equipment was mitigated by lower outlays on automobiles and on other transportation equipment. Exports picked upExports of goods and services grew 0.6% in the second quarter, after declining in the previous two quarters. Higher exports of goods were partly offset by lower exports of services. Automotive product exports advanced for the second consecutive quarter. Services exports slid 2.5%, as exports of travel services, affected by SARS, plummeted 14%. Imports of goods and services advanced 1.4% after a 0.9% gain in the first quarter. Higher imports of machinery and equipment (+1.2%), automotive products (+1.5%), and other consumer goods (+4.9%) were the largest contributors. The implicit price index for imports fell 5.8%, as the Canadian dollar appreciated against the US dollar during the second quarter. Manufacturing slump continuesManufacturing output declined for the third consecutive quarter, as lower production levels were widely reported. Motor vehicle parts manufacturers pared back production. Food manufacturers were hard hit toward the end of the quarter by the mad cow disease scare. Sawmills were hampered by the stronger dollar, making it more difficult to compete in US markets. Manufacturers of information and communication technologies (ICT) equipment continued their downward spiral that started in late 2000. The continued slump in manufacturing had adverse repercussions for the truck transportation industry. Gross domestic product by industry - June 2003Canada's GDP inched up 0.1% after a 0.2% gain in May. On average, the level of economic activity has remained flat since the start of the year.
Sluggishness in the economy resulted largely from a continuing decline in industrial production, with significantly lower output in manufacturing and utilities. The service sector of the economy advanced 0.4% in June after a comparable increase in May. Most service sectors fared well with the exception of wholesale trade. Output of the finance and real estate sector was boosted by an improving stock market and the torrid pace of existing housing sales. Post-secondary educational institutions were busier as a result of increased demand for summer programs, generated by the double cohort of Ontario high school graduates. The state of many tourism-related industries reeling from the impact of SARS improved somewhat in June. Industrial production fell for a fifth consecutive month, declining 0.7% in June. A burst of oil and gas exploration mitigated the slide, as output in manufacturing and utilities fell significantly. Oil and gas drilling activities were up 18% in June after three months of decline. Oil and gas production also increased significantly; however, a mining strike significantly reduced output for metal ore mines. Manufacturing output fell 1.1%, the largest monthly decline since September 2001. In contrast, the US Index of Industrial Production edged up 0.1% in May and June, as output in manufacturing and mining strengthened. The decline in manufacturing output was fairly widespread, affecting food products, textiles, clothing, petroleum and chemical products, wood products, primary metal products, plastics and rubber products, machinery, electronic goods and transportation equipment. Effects of the mad cow crisis continued to push down production of meat products and slaughtering. The output of Canadian sawmills fell 6.2% in June, as the impact of a higher Canadian dollar coupled with punitive tariffs thwarted export sales to the United States. Production of motor vehicles was scaled back in light of large stocks of unsold 2003 vehicles. Manufacturing of computer and electronic products declined 1.8%, with lower production of computers and communications equipment. Reduced manufacturing and forestry sector output was largely responsible for a decline in truck transportation services. Real estate agents and brokers enjoyed another good month, as the sale of existing houses, spurred by low interest rates, remained brisk. Construction of new dwellings eased back slightly over the past two months in the wake of three months of declining housing starts. An increase in housing starts for June and July, however, indicates a resurgence of activity in residential construction in the months ahead. Retailing services were up 0.5% after a strong 0.9% showing in May, but the underlying story was quite different. Sales at motor vehicle dealers fell in June after dominating retail trade in May. June retail activity was significantly higher at furniture, clothing and grocery stores. Wholesaling services were down marginally in June with most trade groups reporting slower sales. Many of the industries related to tourism showed some improvement in June. Air transportation was up 4.1% after four months of sharp decline. Increased output was also recorded by travel agents, as well as by industries providing scenic and sightseeing tours, accommodations, car rentals, taxicabs and amusement and recreational services. Detailed analysis and tablesToday's release of the Canadian economic accounts includes only a brief analysis. The detailed statistical tables are available in the Canadian economic accounts quarterly review (13-010-XIE), as usual. The write-ups that normally come with the review have been postponed until September 12. From the Our products and services page, under Browse our Internet publications, choose Free, then National accounts. Products, services and contact informationGross domestic product by income and by expenditureAvailable on CANSIM: tables 378-0001, 378-0002, 380-0001 to 380-0017, 380-0019 to 380-0035, 380-0056 and 382-0006. Definitions, data sources and methods: survey numbers, including related surveys, 1804, 1901 and 2602. The second quarter 2003 issue of National income and expenditure accounts, quarterly estimates (13-001-XIB, $33/$109; 13-001-XPB, $44/$145) will be available soon. Detailed printed tables of unadjusted and seasonally adjusted quarterly Income and expenditure accounts (13-001-PPB, $50/$180), Financial flow accounts (13-014-PPB, $50/$180) and Estimates of labour income (13F0016XPB, $20/$65), including supplementary analytical tables and charts are now available. At 8:30 am on release day, the complete quarterly income and expenditure accounts, financial flow accounts, and monthly estimates of labour income data sets can be obtained on computer diskette. The diskettes (13-001-DDB, $125/$500; 13-014-DDB, $300/$1200; and 13F0016DDB, $125/$500) can also be purchased at a lower cost seven business days after the official release date (13-001-XDB, $25/$100; 13-014-XDB, $60/$240; and 13F0016XDB, $25/$100). To purchase any of these products, contact Client Services (613-951-3810; iead-info-dcrd@statcan.gc.ca), Income and Expenditure Accounts Division. For more information, or to enquire about the concepts, methods or data quality of this release, contact the information officer (613-951-3640), Income and Expenditure Accounts Division. Gross domestic product by industryAvailable on CANSIM: tables 379-0017 to 379-0022. Definitions, data sources and methods: survey numbers, including related surveys, 1301 and 1302. The June 2003 issue of Gross domestic product by industry (15-001-XIE, $11/$110) will be available in September 2003. A print-on-demand version is available at a different price. For general information or to order data, contact Yolande Chantigny (1-800-887-IMAD; imad@statcan.gc.ca). To enquire about the concepts, methods or data quality of this release, contact Jo Ann MacMillan (613-951-7248; joann.macmillan@statcan.gc.ca), Industry Measures and Analysis Division.
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