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Friday, August 29, 2003

Canadian economic accounts

Second quarter 2003

Real 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.

Real gross domestic product, $ chained 19971
  Change Annualized change Year-over-year change
  %
First quarter 2002 1.4 5.8 2.5
Second quarter 2002 0.9 3.8 3.2
Third quarter 2002 0.7 2.7 4.0
Fourth quarter 2002 0.4 1.6 3.5
First quarter 2003 0.6 2.6 2.7
Second quarter 2003 -0.1 -0.3 1.6
1The change is the growth rate from one period to the next. The annualized change is the growth rate compounded annually. The year-over-year change is the growth rate of a given quarter compared with the same quarter in a previous year.

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.


Note to readers

Today'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.

Because of the recent problems with the electricity in Ontario, several working days were lost in the current production cycle for these statistics, leaving less time to compile, evaluate and review them. While all possible efforts have been taken to assure the quality for these estimates, users are advised that larger-than-normal revisions may be forthcoming.

In addition, a larger-than-usual adjustment has been made to the previously published data on merchandise trade related to the rapid appreciation of the Canadian dollar in the second quarter. As part of a data exchange agreement between Canada and the United States, in existence since the late 1980s, US imports from Canada are used to compile Canadian exports to the United States (and vice versa).

The use of a single set of customs documents as the basis for trade data in each of the national currencies requires exchange rate conversions at various points in the data processing. When exchange rates are stable or shift gradually, this presents little problem. However, the second quarter of 2003 saw the largest exchange rate shift in a single quarter in over half a century. When the trade data were reconciled with production and income data used to compile the quarterly National Accounts GDP figures, discrepancies emerged, in part as a result of the exchange rate conversions inherent in the calculation of trade statistics. Export values have therefore been revised up by $4 billion and $10.8 billion (seasonally adjusted at annual rates) for the first and second quarters of 2003, respectively, via a balance of payments adjustment.

These adjustments are preliminary estimates which may also be subject to larger than normal revisions for the first two quarters of 2003 in subsequent releases. Additional information on this measurement issue will be released as it becomes available.


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 back

Wholesalers 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 SARS

Travel-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 support

Consumer 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 strong

Investment 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 slowed

Growth 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 up

Exports 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 continues

Manufacturing 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 2003

Canada'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.

Monthly gross domestic product by industry at basic prices, $ chained 1997 
  Jan 2003r Feb 2003r Mar 2003r April 2003r May 2003r June 2003p
  Seasonally adjusted
  Month-to-month % change
All industries 0.5  0.2  0.0  -0.3  0.2  0.1 
Goods-producing industries 0.7 0.1 -0.1 -0.8 -0.1 -0.5
Service-producing industries 0.4 0.3 0.0 0.0 0.3 0.4
Industrial production 1.0 -0.7 -0.1 -0.9 -0.3 -0.7
Construction -1.1 2.5 -0.3 -0.1 0.4 0.0
rRevised figures.
pPreliminary figures.

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 tables

Today'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 information

Gross domestic product by income and by expenditure

Available 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 industry

Available 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.

Canadian economic accounts key indicators1
  First quarter 2002 Second quarter 2002 Third quarter 2002 Fourth quarter 2002 First quarter 2003 Second quarter 2003 2001 2002
  Seasonally adjusted at annual rates
  $ millions at current prices
National economic and financial accounts                
Wages, salaries and supplementary labour income 586,892 592,284 600,048 610,040 615,148 617,244 569,920 597,316
  1.7 0.9 1.3 1.7 0.8 0.3 4.6 4.8
Corporation profits before taxes 120,004 132,648 138,656 140,708 151,984 139,544 127,530 133,004
  10.2 10.5 4.5 1.5 8.0 -8.2 -6.0 4.3
Interest and miscellaneous investment income 48,940 49,976 49,756 49,028 50,788 49,004 53,010 49,425
  -0.3 2.1 -0.4 -1.5 3.6 -3.5 -2.3 -6.8
Net income of unincorporated business 73,060 74,812 75,160 75,668 77,972 78,644 70,297 74,675
  1.4 2.4 0.5 0.7 3.0 0.9 5.8 6.2
Taxes less subsidies 135,012 137,412 138,980 141,384 140,560 140,168 129,177 138,197
  2.3 1.8 1.1 1.7 -0.6 -0.3 1.1 7.0
Personal disposable income 688,772 697,328 700,724 707,092 712,580 717,216 667,376 698,479
  1.9 1.2 0.5 0.9 0.8 0.7 4.4 4.7
Personal saving rate2 5.2 4.6 3.8 3.2 2.3 2.4 4.5 4.2
  ... ... ... ... ... ... ... ...
  $ millions chained 1997
Personal expenditure on consumer goods and services 593,710 600,164 602,163 608,753 615,288 619,394 581,590 601,198
  1.2 1.1 0.3 1.1 1.1 0.7 2.6 3.4
Government current expenditure on goods and services 195,606 197,403 199,451 200,614 201,824 203,628 192,426 198,269
  0.2 0.9 1.0 0.6 0.6 0.9 3.7 3.0
Gross fixed capital formation 212,675 213,417 215,087 215,153 218,593 220,049 211,356 214,083
  0.8 0.3 0.8 0.0 1.6 0.7 4.3 1.3
Investment in inventories -6,122 9,932 7,920 11,566 20,194 13,131 -2,044 5,824
  ... ... ... ... ... ... ... ...
Exports of goods and services 441,055 441,610 450,707 440,573 433,028 435,431 443,853 443,486
  0.8 0.1 2.1 -2.2 -1.7 0.6 -3.1 -0.1
Imports of goods and services 372,277 389,046 394,603 393,171 396,808 402,280 384,782 387,274
  0.8 4.5 1.4 -0.4 0.9 1.4 -5.0 0.6
Gross Domestic Product at market prices 1,062,382 1,072,315 1,079,490 1,083,875 1,090,732 1,089,797 1,040,388 1,074,516
  1.4 0.9 0.7 0.4 0.6 -0.1 1.9 3.3
Gross domestic product by industry                
Goods producing industries 297,472 301,804 304,124 303,911 305,727 302,262 297,467 301,828
  1.6 1.5 0.8 -0.1 0.6 -1.1 -2.4 1.5
Services producing industries 666,143 673,935 679,185 683,380 687,748 690,804 649,760 675,661
  1.4 1.2 0.8 0.6 0.6 0.4 3.3 4.0
Industrial production 225,859 230,096 231,929 231,170 231,492 227,689 225,036 229,763
  2.5 1.9 0.8 -0.3 0.1 -1.6 -3.4 2.1
Non-durable manufacturing 66,670 67,760 68,348 68,446 68,183 67,944 65,914 67,806
  1.8 1.6 0.9 0.1 -0.4 -0.4 0.4 2.9
Durable manufacturing 94,307 96,566 97,586 96,600 96,559 94,608 93,972 96,265
  3.7 2.4 1.1 -1.0 0.0 -2.0 -7.6 2.4
Information and communication technologies sector (ICT), total 57,691 58,716 58,938 59,412 60,024 60,470 57,222 58,689
  3.2 1.8 0.4 0.8 1.0 0.7 -1.1 2.6
Manufacturing 160,922 164,291 165,902 164,980 164,688 162,449 159,853 164,024
  2.9 2.1 1.0 -0.6 -0.2 -1.4 -4.6 2.6
Agriculture, forestry, fishing and hunting 20,462 20,763 20,859 21,070 22,075 22,049 22,036 20,789
  -3.6 1.5 0.5 1.0 4.8 -0.1 -5.3 -5.7
Construction 51,009 50,776 51,161 51,521 52,079 52,486 50,347 51,117
  -0.1 -0.5 0.8 0.7 1.1 0.8 3.9 1.5
Wholesale trade 56,344 58,423 59,129 59,980 61,717 61,852 54,534 58,469
  2.5 3.7 1.2 1.4 2.9 0.2 1.9 7.2
Retail trade 54,103 54,165 54,328 54,730 55,344 55,568 51,399 54,331
  2.5 0.1 0.3 0.7 1.1 0.4 3.9 5.7
1The first line is the series itself expressed in millions of dollars, seasonally adjusted at annual rates. The second line is the quarter to quarter percentage change at quarterly rates.
2Actual rate.
...Not applicable.



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Date Modified: 2003-08-29 Important Notices