Canadian economic accounts

View the most recent version.

The pace of economic activity was largely unchanged in the third quarter, following a pronounced slowing in the second quarter. Real gross domestic product (GDP) advanced 0.4%, compared to 0.5% and 0.9% growth in the second and first quarters respectively. In the third quarter of 2006, a turnaround in exports, a pickup in business non-residential investment and a slight acceleration in personal expenditure, were offset by a further decline in investment in residential construction and notably weaker government current expenditures and inventory accumulation.

Economic production fell back in September (-0.3%), after having advanced in both July (+0.2%) and August (+0.3%). The production of goods declined sharply (-1.0%) in September while activity in service industries was essentially unchanged.

A more detailed analysis is available in Canadian Economic Accounts Quarterly Review.

Continued strength in business investment in non-residential structures and equipment, particularly a gain in engineering construction, along with a rebound in exports led third quarter GDP growth. Exports were buoyed by sales of industrial goods and materials, machinery and equipment, agricultural and fish products and other consumer goods. Consumer spending, which has been a sustaining factor in the economy for several quarters, strengthened marginally in the third quarter.

Final domestic demand slowed further, largely constrained by a second and sharper decline in residential construction investment (-2.1%) and slower government spending. Businesses continued to accumulate inventories, but at a slower pace than in the second quarter.

Services-producing industries softened in the quarter (+0.5%), reflecting weaker or reduced activity across a number of industries. Activity remained relatively strong in the wholesale and retail trade and in financial services. Output of goods-producing industries continued to decline (-0.1%), constrained by the manufacturing sector and forestry. The energy sector increased 0.9% in the third quarter, as oil and gas exploration and petroleum extraction activities rebounded. Both domestic and export demand supported manufacturing production of machinery and equipment.

Industrial production (the output of factories, mines and utilities) edged up (+0.1%) in the quarter, on the heels of a sharp decline in the second quarter. This turnaround was driven by oil and gas as well as mining activities, since manufacturing declined and utilities were unchanged. In the United States, the index of industrial production decelerated sharply from the second quarter.

The economy grew at an annualized rate of 1.7% in the third quarter, a slight deceleration from the 2.0% pace set during the previous quarter. Growth in the US economy slowed to 2.2% in the third quarter, as activity in the housing market dropped further and imports strengthened.

Economy-wide prices, as measured by the chain price index for GDP, crept up 0.2% in the quarter (up 0.4% excluding energy). This was largely accounted for by increased export prices, following two quarters of decline; this gain mainly arose from higher prices for industrial goods and materials. Final domestic demand prices were up 0.3%, led by higher prices on government current expenditure on goods and services and business gross fixed capital formation. However, the chain price index growth for consumer expenditure was dampened by the 1% reduction in the goods and services tax rate effective July 1.

Residential construction weakens further

After a housing boom lasting about five years, the second consecutive quarterly drop in investment in residential construction suggests a cooling in the housing market. The more pronounced decline in investment in residential structures (-2.2%) in the third quarter was the largest in this component since the first quarter of 1998. New housing construction fell 3.3% in the third quarter. The resale market also weakened substantially, as ownership transfer costs declined by 4.4%, and the output of real estate agents fell. On the other side of the ledger, renovation activity advanced in the third quarter.

Inventory accumulation slows

Business non-farm inventories continued to build-up in the third quarter, but at a slower pace than in the second quarter. Manufacturing stocks of durable goods picked up, while retailers added less durable goods to their inventory. Wholesale inventory accumulation also slowed. Despite lower motor vehicle production, stocks continued to build in the quarter as imports outpaced the growth of domestic sales.

Government spending flattens

Government current expenditure on goods and services decelerated sharply, mainly reflecting a decline in hours worked from the second quarter. The winding down of the 2006 Census in the third quarter was a contributing factor in slower government current expenditures. Investment in fixed capital formation by government was virtually unchanged from the second quarter.

Business non-residential investment picks up

Business capital spending on non-residential structures and equipment continued to grow at a good clip (+1.7%). Expenditure on machinery and equipment advanced at a quicker pace (+2.2%) than in the second quarter, reflecting robust spending on industrial machinery, on trucks, on software as well as on computers and other office equipment.

Investment in non-residential construction projects accelerated (+1.2%), led by engineering construction.

Consumer spending continues to support the economy

Firmer consumer spending (+1.0%) in the quarter, especially on durable goods, was behind the increase in retail trade output (+0.9%).

Durable goods expenditure (+2.2%) grew at almost twice the rate of the second quarter, as purchases of motor vehicles rebounded (+2.5%). This was partly attributable to dealer incentives and low financing rates. The strong increase in spending on new trucks and vans (+3.7%) was concentrated in July and August.

Expenditures on semi-durable and non-durable goods decelerated in the third quarter, partially offsetting the impact of the spending spree on motor vehicles. However, spending on services picked up, in part due to increased travel spending.

Turnaround in exports provides a boost to economic activity

Exports of goods and services rebounded (+0.9%) after having declined for two consecutive quarters. While exports of services fell, exports of goods were up 1.2%. Exports of agricultural and fish products, industrial goods and materials, machinery and equipment (notably, aircraft, engines and parts) and other consumer goods all registered significant gains.

Exports of automotive products continued to decline (-6.7%) for the third consecutive quarter, reflecting weaker motor vehicle production as some Canadian automobile manufacturing plants experienced extended or irregular shutdowns. This is in contrast to strong imports of automotive products (+4.4%), which continued their upward trend.

Corporate earnings lead nominal dollar income growth

Corporate profits gained 2.7% in the third quarter, up sharply from the second quarter. The strength in earnings arose largely from petroleum and coal manufacturers, from the air transportation industry as well as from chartered banks. The corporate surplus (net lending to the rest of the economy) was up sharply in the non-financial corporations sector.

Labour income was up 1.1% in the third quarter. The first and second quarter growth rates of labour income were affected by a large special payment in the first quarter made to reduce an actuarial deficit of a government employer sponsored pension plan.

Wages and salaries grew by 1.1%, down slightly from the average increase (+1.5%) registered in the previous six quarters, as unemployment edged up. Continuing strength in both mining and oil and gas extraction and in construction contributed to gains in wages and salaries (+1.0%) in the goods-producing industries. The services-producing industries wages and salaries also rose (+1.1%), led by professional and personal services.

GDP by industry, September 2006

The Canadian economy fell back (-0.3%) in September, after growing 0.3% in August and 0.2% in July. Goods production, which has shown signs of weakness since the start of the year, declined 1.0% in September, while service industries held steady. Decreases in manufacturing, wholesale trade and the energy sector were only partially offset by the strength of the finance, accommodation and food services sectors. Special events hindered growth in September, such as a strike in the mining sector in Labrador and the winding down of the collection activities of the 2006 Census.

Manufacturing output fell 1.4% in September. This is the eighth monthly decline since the start of the year. Of the 21 major groups, 16 cut back their production, accounting for 82% of total manufacturing output. The largest decreases were in the manufacturing of transportation equipment, chemical and metal products, and machinery, as well as in printing activities.

After two months of strong growth, wholesale trade dropped 2.1%. Declines were widespread, with wholesalers of automotive products and of machinery and electronic equipment registering the steepest declines. Retail trade grew by only 0.2% in September, held back by a steep drop in sales of new motor vehicles.

The energy sector declined 1.0%, largely owing to a reduction in natural gas production and a drop in electricity production. The reduction in the production of natural gas was largely due to weaker prices and high inventories.

Industrial production (the output of mines, utilities and factories) fell 1.4%, with declines in all three sectors. Industrial production in the United States also decreased (-0.6%) in September, with mining being the only sector to advance.

The finance and insurance sector grew 0.8% in September, on the strength of banking and lending activities (+1.0%) and a rebound in brokerage activity. Meanwhile, real estate brokers registered a fifth consecutive monthly decline, reflecting the downturn in the home resale market that began last March.

Detailed analysis and tables

The National Economic Accounts module, accessible from the home page of our website, features an up-to-date portrait of national and provincial economies and their structure.

More detailed analysis on today's releases from the national accounts, including additional charts and tables, can be found in the third quarter 2006 issue of Canadian Economic Accounts Quarterly Review, Vol. 5, no. 3 (13-010-XWE, free) from the Publications module of our website.

Products, services and contact information

Gross domestic product by industry

Available on CANSIM: tables 379-0017 to 379-0022.

The September 2006 issue of Gross Domestic Product by Industry, Vol. 20, no. 9 (15-001-XWE, free) is now available from the Publications module of our website.

For general information or to order data, contact our dissemination officer (toll-free 1-800-887-4623; iad-info-dci@statcan.gc.ca). To enquire about the concepts, methods or data quality of this release, contact Bernard Lefrançois (613-951-3622), Industry Accounts Division.

National economic and financial accounts

Available on CANSIM: tables 378-0001, 378-0002, 380-0001 to 380-0017, 380-0019 to 380-0035, 380-0056, 380-0059, 380-0060 and 382-0006.

Definitions, data sources and methods: survey numbers, including related surveys, 1301, 1804, 1901 and 2602.

The third quarter 2006 issue of National Income and Expenditure Accounts, Quarterly Estimates (13-001-XIB, free) will soon be available.

Detailed printed tables of unadjusted and seasonally adjusted quarterly National Income and Expenditure Accounts (13-001-PPB, $54/$193), Financial Flow Accounts (13-014-PPB, $54/$193) and Estimates of Labour Income (13F0016XPB, $22/$70), including supplementary analytical tables and charts are now available.

At 8:30 a.m. on release day, the complete seasonally adjusted quarterly National Income and Expenditure Accounts (13-001-DDB, $134/$535), Financial Flow Accounts (13-014-DDB, $321/$1,284), and monthly Estimates of Labour Income (13F0016DDB, $134/$535) data sets can be obtained on computer diskette.

These diskettes can also be purchased at a lower cost seven business days after the official release date (13-001-XDB, $27/$107; 13-014-XDB, $65/$257; and 13F0016XDB, $27/$107). 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, iead-info-dcrd@statcan.gc.ca), Income and Expenditure Accounts Division.

Table(s).