Canadian economic accounts

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The Canadian economy posted a second consecutive quarter of strong growth. Real gross domestic product (GDP) was up 0.8% in the second quarter of 2007, easing from the pace set in the first quarter (+1.0%). This strength was widespread as consumer and investment expenditures accelerated from the first quarter, while businesses also continued to add to inventories. Despite a substantial appreciation of the Canadian dollar relative to its US counterpart, exports also increased, outpacing first-quarter gains.

The economy grew at a 3.4% annualized rate in the second quarter, down slightly from the strong pace set in the first quarter. This growth was similar to that of the US economy (+4.0%), which gained substantial momentum in the second quarter.

Growth was concentrated in the latter two-thirds of the second quarter. Economic activity increased 0.2% in June, after growing 0.3% in May and remaining essentially unchanged in April. A significant increase in natural gas extraction and a rebound in oil and gas exploration propelled the growth in June.

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

Final domestic demand picked up steam in the second quarter of 2007 (+1.1%), outpacing the GDP. Consumer spending, led by purchases of durable goods, was the largest contributor to growth. Residential construction continued to build on first-quarter gains by expanding 1.3% in the second quarter. Business investment in machinery and equipment rebounded following a sharp drop in the first quarter.

Both the services- and goods-producing industries' output grew in the second quarter, increasing 0.9% and 0.3% respectively. Growth came mainly from retail and wholesale trade, utilities, the finance and insurance sector, and construction. The manufacturing sector posted its first quarterly increase since the fourth quarter of 2005. However, these gains were partly offset by declines in oil and gas exploration, accommodation and food services, agriculture, and forestry.

Industrial production (the output of utilities, mines and factories) advanced 0.4%. Utilities posted significant gains, while manufacturing moved ahead slightly. Mining receded as a result of the decline in oil and gas exploration. Industrial production in the United States rose 0.8%, as manufacturing and mining posted gains, while utilities slipped.

Economy-wide prices in Canada, as measured by the chain price index for the GDP, rose 1.4% (+1.7% excluding energy) in the second quarter following an energy-related increase of 1.6% in the first quarter.

Consumer spending picks up

Personal expenditure rose 1.2% in the second quarter, fuelled by gains in income. Consumers opened their pocket books to finance a surge in purchases of goods, notably motor vehicles, household appliances and recreational, sporting and camping equipment. Retail sales were particularly strong in May.

Residential investment remains strong for a second consecutive quarter

Despite increases in mortgage rates, Canadians continued to invest in housing in the second quarter. Investment increased 1.3% following a strong 2.0% increase in the first quarter. The main source of strength continued to be the resale market as ownership transfer costs accounted for more than half of the increase.

Machinery and equipment spending rebounds while business non-residential spending slows

After faltering in the first quarter, business investment in machinery and equipment rebounded 1.5% in the second quarter. A sharp gain in the Canadian dollar relative to the US currency reduced the cost of imports from the US.

Business investment in non-residential structures was up 0.5% in the second quarter. After registering strong advances in 2006, engineering construction was flat in the second quarter with weak drilling activity recorded in the mining sector. Building investment, on the other hand, advanced 2.2%.

Non-farm inventories continue to accumulate

Another $4.8 billion was added to inventories in the second quarter, following a $3.2 billion addition in the first quarter. Non-durable manufactured goods swelled in the second quarter, after two quarterly declines. Conversely, motor vehicle stocks in the retail sector were down sharply, reflecting the increased sales of these products.

Exports re-energize

After pausing in the first quarter, exports of goods and services advanced 0.7% in the second quarter. Energy products surged 3.3%. Manufactured goods registered mixed results as automotive products fell 2.7% while industrial goods and materials advanced 1.2%, recouping the losses of the first quarter.

Spurred by the jump in the Canadian dollar and strong domestic demand, imports rose 1.6%, following a small decline in the first quarter. Business demand for machinery and equipment bounced back in the second quarter, as these assets accounted for over one-third of the overall increase in imports. Imports of consumer goods, which have grown every quarter since the second quarter of 2005, also rose substantially, reflecting the increases in personal expenditure. Automotive product imports dropped 1.4%, moderating these increases.

Labour income continues strong

After a robust first quarter (+2.2%), labour income (in nominal terms) remained strong in the second quarter, rising 1.8%. High employment rates provided a solid foundation for these gains. Pay equity payments in Quebec and special pension contributions in Newfoundland and Labrador contributed to the growth in both the first and second quarters. Removing the effect of these special payments from both quarters, labour income would have risen 1.7% in the second quarter and 1.8% in the first quarter.

Profits ease, unincorporated income remains firm

Corporate profits (in nominal terms) grew 1.2% in the second quarter following a 2.2% increase in the first quarter. Wholesale and retail trade saw large gains boosted by personal spending. With mineral prices on the rise, profits were also strong in the mining sector. On the other hand, earnings of manufacturers, specifically motor vehicles and parts manufacturers as well as wood and paper producers, slipped. Chartered banks, and property and casualty insurers also saw their profits decline in the second quarter.

Income of non-farm unincorporated business remained firm (+1.6%). After two years of low earnings, farm operators have registered some significant income increases in 2007. An upward movement in prices for many crops has been instrumental in these gains.

Government sector saving advances sharply

Government sector saving expanded sharply in the second quarter, largely as a result of increased income. Personal income taxes registered a 5.9% gain, fuelled by sustained growth in labour income and a large increase in taxes paid on interest and capital gains. Taxes on products also advanced on the strength of retail sales.

GDP by industry, June 2007

Economic activity increased 0.2% in June, its average pace since the beginning of the year, after growing 0.3% in May and remaining essentially unchanged in April. Both the goods- and services-producing industries advanced. A significant increase in natural gas extraction and a rebound in oil and gas exploration largely contributed to the overall growth. Gains were also registered in construction, the financial sector and in personal and business service industries, notably the gambling industry and food services. These increases were partially offset by declines in manufacturing, retail trade, agriculture, forestry, as well as utilities.

The energy sector advanced 1.5% in June, after declining in May. Natural gas extraction grew sharply, helped by the strengthening of demand in the United States and the return to normal levels of storage in both countries. Domestic demand has remained relatively stable over the last several months. Crude oil production rose slightly. Oil and gas exploration grew strongly (+10%) after three months of significant decline, but its level is about one-third lower than that of January.

The construction sector rose 0.4% in June. Residential (+0.4%) and non-residential building (+0.7%) construction as well as engineering and repair work (+0.3%) all posted increases for the month. The construction of single-family homes, which rose for the second consecutive month after a prolonged decline, largely contributed to the advance in residential construction in June.

Retail trade retreated 0.6% in June, following a very strong May (+2.3%). Sales by new car dealers remained high but returned to their April level. Used car and recreational motor vehicle dealers also saw their sales reduced. Wholesale trade was stagnant in June, following a robust May (+1.5%).

The manufacturing sector slipped 0.4%. The 0.8% reduction in the production of durable goods overshadowed the 0.3% increase in non-durable goods. Of the 21 major manufacturing groups, 13 decreased, accounting for 61% of total manufacturing value added. Recording their third consecutive monthly decrease, motor vehicle manufacturing (-5.3%) and associated parts production (-1.1%) led the decline in June.

Industrial production (the output of mines, utilities and factories) rose 0.4% in June. The robust showing of mining outweighed the declines reported by factories and utilities. In comparison, all three sectors increased in the United States, resulting in an overall gain of 0.6% in June.

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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 second quarter 2007 issue of Canadian Economic Accounts Quarterly Review, Vol. 6, no. 2 (13-010-XWE, free), available from the Publications module of our website.

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, 1804, 1901 and 2602.

The June 2007 issue of Gross Domestic Product by Industry, Vol. 21, no. 6 (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.

The second quarter 2007 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.

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