Section 1: Current economic conditions

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Overview 1 

Real GDP grew 0.5% in the first quarter of 2012, similar to the pace in the previous quarter. On a year-over-year basis, growth was 1.8% compared to 2.2% in the fourth quarter of 2011. Employment was unchanged in May, following two months of large gains, leaving the unemployment rate steady at 7.3%. After five consecutive monthly surpluses in merchandise trade, a decline in exports led to a trade deficit in April.

Growth in final domestic demand continued to slow, increasing 0.3% in the first quarter.

For the G7 economies, the first quarter increase of 0.5% in Canada matched that of Germany and the United States. Japan's economy expanded 1%, while France was flat and Italy and the United Kingdom posted declines.

Labour markets

Employment was unchanged in May, following monthly advances of 0.5% in March and 0.3% in April. The unemployment rate was unchanged at 7.3%.

Employment rose 0.3% in the goods sector, as increases in manufacturing and agriculture outweighed declines in construction, utilities and other primary industries. Manufacturing employment has increased since November 2011, while construction employment gave back earlier gains as weather returned to more seasonal temperatures.

Employment in the services sector edged down, while increases in trade and public administration were more than offset by declines elsewhere.

Alberta and New Brunswick posted gains in employment in May, while Prince Edward Island posted a decline. Employment was little changed in the other provinces.

Leading indicators

The composite leading indicator rose 0.3% in April, matching the increase in March. This was the tenth consecutive monthly increase. Seven of the ten components advanced in the month.

The components related to household demand supported the increase in April, led by a rise in housing starts. Both furniture sales and sales of other durable goods posted a third monthly gain. The financial components remained positive, as did employment in services. The average workweek declined however, after being flat in the two previous months. The United States leading indicator rose for the third straight month, supported by its financial components and building permits.

In manufacturing, new orders fell for the second month in a row, while the ratio of shipments to inventories was unchanged.


Real GDP grew 0.5% in the first quarter of 2012, matching the pace in the fourth quarter of 2011. Growth was supported by business and residential investment, as both consumer spending and exports slowed.

Business investment advanced for the ninth straight quarter, rising 1.2%, supported by an increase in machinery and equipment. Groundbreaking on new homes rebounded, supporting the fifth consecutive quarterly increase in residential investment. Consumer spending rose 0.2%, slowing from 0.7% in the previous quarter, reflecting lower demand for durable and non-durable goods. Exports were dampened by a decrease in services, as goods advanced, led by a 5.9% increase in energy products.

Real GDP edged up 0.1% in March, following a 0.2% decline in February. Industrial production fell for the second straight month, as a rise in manufacturing could not offset further declines in mining and utilities. Construction output continued to advance, as did most services with the exception of education.

Chart 1.2

Manufacturing rebounded 0.9% in March, supported by increased output of transportation equipment, fabricated metal products and machinery. Mining remained dampened by ongoing maintenance and production difficulties in the oil fields, as output at potash and nickel mines resumed following temporary shutdowns in February. Unseasonably warm weather continued to lower demand for electricity and natural gas.

Construction rose for the fifth month in a row in March, as ground-breaking advanced on both residential and non-residential buildings. Retail trade recovered from a two-month slump, while wholesale trade remained supported by steady demand for autos, auto parts and petroleum products. Output in all other service industries increased in the month with the exception of public sector output due to a decline in education services related to walkouts by some CEGEP and university students in Quebec.

Household demand

Retail sales volumes rose 0.4% in March, increasing for the seventh time in eight months, as demand for new autos recovered from a decline in February. Sales volumes of durable goods edged up in March, while semi-durables posted the fifth consecutive monthly increase. Unseasonably warm weather advanced sales for spring merchandise. Retailers of building materials and garden equipment had the largest gains for the second straight month. Demand for new spring fashions supported sales of clothing and footwear, with increases in both volumes and prices. Sales volumes of non-durable goods declined, as consumers scaled back purchases of gasoline and food.

The pace of housing starts in April was not sustained in May, as ground-breaking on new homes returned to a seasonally adjusted annual rate of 211,400 units. Starts on multiple units continued to dominate, decreasing in Ontario, Quebec and the Prairies, and rising in Atlantic Canada and British Columbia.

Existing home sales increased 0.8% in April, following a 2.5% increase in March. Sales in the Prairies and Central Canada led growth, offsetting declines in British Columbia and the Atlantic provinces. The average sales price rose 0.9% from a year earlier to $375,810 as higher prices in Saskatchewan, Manitoba and Ontario offset a second monthly decline in British Columbia.

Merchandise Trade

The current account deficit widened to $10.3 billion in the first quarter, as a lower surplus on goods was partly offset by a lower deficit on investment income. The decline in the goods surplus reflected lower exports, as imports remained steady. However, the goods surplus with the United States reached the highest level since the third quarter of 2008, led by energy exports.

In nominal terms, merchandise exports declined 1.2% in April, while imports edged up 0.1%, resulting in the first trade deficit in six months.

The volume of exports increased 0.7% in April, as higher demand for energy and automotive products more than offset declines for industrial goods and machinery and equipment. Prices fell 1.9%, led by a 6.7% drop in energy prices. Both volumes and prices of imports were flat in the month.

The trade surplus with the United States contracted in April to $3.8 billion, down 36% from its recent peak in December 2011.


The seasonally-adjusted consumer price index rose 0.2% in April, matching the increase in March. Year-over-year, the rate of inflation was 1.9% in April, compared to 2.0% in March. The core index increased 0.4% in the month, the largest monthly increase in 14 months. On an annual basis, the core index rose 2.0% compared to 1.9% in March.

Clothing and footwear prices rebounded in April, rising 1.1% after a 0.6% decline in March, as retailers offered new summer wear. Transportation costs rose 0.4%, supported by higher gasoline prices. Higher prices for meat and cereal products led an increase in food costs, while health and personal care prices were unchanged for the second straight month, after rising for seven consecutive months.

Financial markets

In the capital and financial account, non-residents continued to invest in government bonds in the first quarter, but reduced their holdings of other instruments, resulting in the lowest quarterly foreign acquisition of Canadian securities in over three years. Investment by non-residents declined from $27.2 billion in the fourth quarter of 2011 to $6.3 billion in the first quarter of 2012.

The Canadian dollar fell below parity with the US greenback in May for the first time since the start of the year.

Chart 1.4

Toronto stock prices fell 6.3% in May, the largest one-month decrease since September 2011. Broad declines were recorded, with the exception of real estate and telecom services which were flat. Metals and mining posted a 16.9% decline, followed by a 10.8% drop in energy, as commodity prices continued to retreat in the month.

Regional economies

In Ontario, manufacturing sales advanced 1.9% in March, following two monthly declines, reflecting increases in petroleum, auto assemblies, chemicals and food receipts. Demand for both durable and non-durable goods recovered from declines in February. Retail sales rose for the fourth time in five months as unseasonably warm weather supported spring-related purchases in March. Housing starts increased for the third month in a row in April, boosted by an 18.6% rise in multi-family units in Toronto, which have now almost tripled from their February level.

Manufacturing sales in the Prairies rose for a second straight month in March, lifted by Alberta as sales declined in both Manitoba and Saskatchewan. Gains in fabricated metals and machinery shipments more than offset a decline in petroleum receipts. Retail sales picked up in the month, while housing starts posted the fourth consecutive monthly increase in April, primarily due to ground-breaking on multi-family units in Alberta.

Housing starts almost doubled their pace in Quebec in April, led by a rise in multi-family units. Manufacturing sales posted a second straight gain in March, supported by an increase in aerospace products and parts manufacturing. Retail sales edged down in the month.

Manufacturing sales rose again in British Columbia in March, supported by further increases in wood and paper, as demand for non-metallic minerals declined. Retail sales tapered off, following two months of gains, while a renewal of ground-breaking on multi-family units boosted housing starts.

Manufacturing sales increased in the Atlantic provinces in March, after three monthly declines, as sales on non-durable goods in New Brunswick hit the second-highest level on record. Housing starts in April were lifted by an increase in multi-family units in Newfoundland and Labrador, while retail sales declined for the third month in a row in March.

International economies

In the United States, real GDP for the first quarter of 2012 was revised slightly to 0.5%. Industrial production increased 1.1%, with gains across all the major sectors. Utilities output grew 4.5%, supported by a return to cooler temperatures. Manufacturing output was led by autos, where production rose 3.9%. Non-auto output increased 0.3%.

The trade deficit widened in March as imports grew 5.2%, lifted by consumer goods. Exports rose 3%, with exports to Europe reaching an all-time high.

Lower consumer confidence and a return to seasonal temperatures dampened retail sales in April. Receipts were down for building and garden supply centres, clothing and gasoline stations. Consumer prices were unchanged in the month, as declining energy costs were offset by rising food and housing prices.

Employers added 69,000 jobs in May, the smallest increase in a year, while the number of jobs added in March and April were revised down by 49,000. Employment increased in healthcare, transport and wholesale trade, but declined in construction. The unemployment rate edged up to 8.2% from 8.1% in April.

Real GDP was flat in the euro-zone in the first quarter of the year, following a 0.1% decline in the last quarter of 2011. Industrial production fell 0.3% in March, primarily due to an 8.5% drop in energy production, reflecting warmer weather. Construction picked up after three monthly declines, led by a recovery in Germany. The external trade surplus widened as a rise in the energy deficit was more than offset by an increase in the manufactured goods surplus. Consumers resumed spending in March, while the unemployment rate edged up to 10.9%. The annual rate of inflation eased to 2.6% in April from 2.7% the month before.

The German economy expanded by 0.5% in the first quarter, after a 0.2% contraction at the end of 2011, supported by gains in exports and consumer spending. Industrial production rose 1.3% in March, the third monthly increase, led by a 30% rise in construction after severe winter weather hampered building in February. Exports increased 0.9%, slowing from their pace at the start of the year. Retail sales volumes expanded in March, while the unemployment rate was stable at 5.6%. Inflation eased to an annual rate of 2.2% in April.

Real GDP in France was flat in the first quarter, following a 0.1% rise in the last quarter of 2011. Industrial production declined in March, as warmer weather led to a drop in demand for electricity and gas for heating, offsetting an increase in manufacturing output. Construction rebounded after severe winter storms in February. Consumer spending rose for the third month in a row in March, with the unemployment rate unchanged at 10%. The annual rate of inflation fell to 2.4% in April, from 2.6% in March.

Real GDP in Britain in the first quarter was revised down to a 0.3% contraction from -0.2%, as a decrease in personal expenditure more than offset gains in government spending on health and defence. Industrial production dipped in March, as an increase in manufacturing could not offset declines in energy and mining. Construction rose for the second straight month in March, while warmer weather also gave a boost to consumer spending. The annual rate of inflation fell to the slowest pace in over two years in April, easing to 3%, as prices declined for clothing, alcohol, and air and sea transport.

Real GDP contracted for the third consecutive quarter in Italy, down 0.8%, after declines of 0.2% and 0.7% in the third and fourth quarters of 2011, respectively. Industrial production rebounded in March, due to a pickup in manufacturing. Construction recovered after two month of declines. Consumer spending was flat, and the unemployment rate rose to 9.8% in March, from 9.6% in February.

Japan's economy expanded by 1% in the first quarter of 2012, led by consumer and government spending. Demand for autos was lifted by government incentives on fuel-efficient cars, while post-tsunami rebuilding continued. The trade deficit widened in April, as oil and gas imports continued to climb following the shutdown of all nuclear power reactors. Consumer prices edged up in April, due to higher energy and fresh food costs.

Industrial production in China rose 9.3% in April from a year earlier, down from 11.9% in March. Business investment and retail sales growth also slowed in the month. Imports contracted in April, leading to the biggest monthly increase in the trade surplus since February 2009. The pace of inflation decelerated to an annual rate of 3.4% in April.

Economic growth in India slowed in the first quarter to 5.3% year-over-year, the slowest pace since 2004, as manufacturing production contracted and the output of electricity, mining and agriculture decelerated.

Real GDP in Mexico grew 4.6% year-over-year in the first quarter, the fastest pace in a year and a half. An increase in exports to the United States supported manufacturing output.