Gross domestic product, income and expenditure, first quarter 2016

Released: 2016-05-31

Real gross domestic product (GDP) grew 0.6% in the first quarter, following an increase of 0.1% in the fourth quarter of 2015.

Chart 1 
Gross domestic product and final domestic demand

Exports were the largest contributor to real GDP growth in the first quarter, up 1.7% following a 0.4% decline in the previous quarter. The volume of exports of goods increased 1.9%, while that of services advanced 0.7%. Imports were up 0.3%.

Final domestic demand was up 0.3%, after edging down 0.1% in the previous quarter.

Business non-residential investment fell 2.5%, the fifth consecutive quarterly decline, driven by lower investment in engineering structures (-4.3%).

Housing investment was up 2.7% in the first quarter, with increases in new home construction, renovations and resale activity. Household final consumption expenditure rose 0.6%, with increased outlays on goods (+1.1%) and services (+0.2%).

Businesses drew down inventories by a further $7.0 billion, after a $5.6 billion withdrawal in the previous quarter. The stock-to-sales ratio edged down.

Government final consumption expenditure increased 0.4% in the first quarter.

Expressed at an annualized rate, real GDP rose 2.4% in the first quarter. By comparison, real GDP in the United States grew 0.8%.

Chart 2 
Contributions to percent change in real gross domestic product, first quarter

Volume of exports rises

Real exports of goods and services posted a 1.7% gain in the first quarter, following a decline of 0.4% in the fourth quarter of 2015. Although the volume of exports increased, their value in nominal terms decreased 0.8%, largely because of price declines in the energy sector. The resulting decline in export-related earnings was reflected in lower gross operating surplus of non-financial corporations (-1.3%).

Exports of goods were up 1.9%, following a 0.6% decline in the previous quarter. Motor vehicles and parts (+7.3%) were the main contributor, marking a fourth consecutive quarter of growth. Notable increases were also recorded in basic and industrial chemical, plastic and rubber products (+6.1%) and forestry products and building and packaging materials (+4.5%). Offsetting these increases were international shipments of metal ores and non-metallic minerals, which fell 10.0%.

Exports of services grew 0.7%, owing largely to gains in travel services, which increased 3.2% following three quarters of contraction.

Chart 3 
Contribution of exports to growth in real gross domestic product

Investment in housing strengthens

Growth in business investment in residential structures accelerated to 2.7% in the first quarter, the fifth consecutive quarterly increase. Business investment in new housing construction increased 2.9%, after a 0.7% decrease in the fourth quarter of 2015. Ownership transfer costs (+5.8%), which reflect movement in the resale market, and renovations (+0.6%) were both up for the second consecutive quarter.

Household consumption increases

Household final consumption expenditure increased 0.6% in the first quarter, following a 0.5% gain in the fourth quarter of 2015. Outlays on goods grew 1.1%, as semi-durable goods (+1.9%), durable goods (+1.1%) and non-durable goods (+0.8%) all rose. Outlays on services increased 0.2%.

Expenditures on transport advanced 1.2%, as spending associated with the operation of transport equipment, such as gasoline, repairs and other vehicle expenses, rose 1.8%. Clothing and footwear expenses increased 2.8%, while spending on electricity, natural gas, propane and other fuels decreased 1.4%, partly as a result of unseasonably warm weather in some parts of the country.

Spending on insurance and financial services was up 0.8% for the quarter.

Expenditures by Canadians abroad fell 4.3%, influenced by a depreciation in the exchange rate relative to the US dollar.

Further declines in business investment

Investment in non-residential structures decreased 3.7%, continuing the downward trend seen over the previous five quarters. Lower investment in engineering structures (-4.3%) largely contributed to the decline in the first quarter, due to weakened investment activity in the oil and gas sector, which was affected by lower oil prices. Business investment in non-residential buildings (-1.9%) also continued to fall.

Business outlays on machinery and equipment fell 0.7%, in tandem with decreasing imports. This was the fifth consecutive quarterly decline, with aircraft and other transportation equipment (-13.7%) and industrial machinery and equipment (-1.9%) leading the decrease.

Business investment in intellectual property products was down 1.4%, as software fell 1.8% and research and development dropped 1.2%. Mineral exploration investment edged down 0.1%, following larger declines throughout 2015.

Business inventories drawn down

Non-farm inventories were reduced by a further $7.2 billion in the first quarter, after a withdrawal of $4.8 billion in the previous quarter. This resulted mainly from a continued drawdown in motor vehicle inventories. Farm inventories were reduced for a ninth consecutive quarter.

Retailers' inventories of durable goods declined $3.4 billion, mainly as a result of lower stocks of motor vehicles (-$2.5 billion). Wholesalers' inventories of non-durable goods were up $1.7 billion in the first quarter. Manufacturers' inventories of non-durable goods increased $2.3 billion.

The economy-wide stock-to-sales ratio edged down in the first quarter.

Real gross national income declines

Real gross national income, a measure of the purchasing power of productive income earned by Canadian residents, retreated 0.4%, following a flat fourth quarter.

Export prices fell 2.5%, while import prices declined at a slower rate (-0.4%), resulting in weakened terms of trade. The price of final domestic demand rose 0.3%, while the GDP implicit price index, representing the overall price of goods and services produced in Canada, declined 0.3% in the first quarter, pulled down by price declines in oil and natural gas.

Household disposable income advances

Household disposable income increased 0.6% (nominal terms) in the first quarter. Compensation of employees rose 0.4%, as a result of increases in both wages and salaries (+0.4%) and employers' social contributions (+0.5%). Transfers received by households rose 0.7%, owing mainly to social security benefits and Employment Insurance benefits, while transfers paid by households fell 0.4%, owing to lower transfers to financial corporations.

Household final consumption expenditure (+0.7%) increased at a slightly faster pace than disposable income. The household saving rate was 3.9% in the first quarter.

The household debt service ratio (defined as household mortgage and non-mortgage payments divided by disposable income) edged down from 14.05% to 14.04%, as both income and obligated payments increased at almost the same rate.

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