Gross domestic product by income and by expenditure

Fourth quarter 2003

Economic growth advanced 0.9% in the fourth quarter, the strongest performance in six quarters. Exports were the main contributor to growth in the quarter, bouncing back from four consecutive quarterly declines. Final domestic demand, on the other hand, grew only 0.3% following average growth of 1.0% in the four preceding quarters. Consumer spending remained unchanged following average growth of 1.0% in the previous four quarters. Prices, as measured by the chain price index for GDP, edged up 0.1% from the previous quarter and increased 2.3% on a year over year basis.

Real Gross domestic product, chained (1997) dollars¹

GDP picked up at year end

On an annualized basis, growth in the quarter was 3.8%. South of the border, the U.S. economy grew at an annualized rate of 4.1%, down from 8.2% in the third quarter.

The annual growth in GDP for 2003 was 1.7% slowing from 3.3% in 2002. Preliminary provincial data for 2003 will be released on April 28, 2004.

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Exports bounced back

Exports rebounded, growing 3.2%. Quarterly export growth has averaged less than 0.1% since the beginning of 2000.

Export growth rebounded

Industrial goods and materials exports surged ahead 8.3% driven by higher exports of metal concentrates and alloys. Automotive product exports bounced back, particularly passenger cars and chassis, with increased demand from the U.S. Energy products, including crude petroleum, advanced 4.2%

Imports grew 4.2%. Automotive products imports rebounded 7.5%, following a large decline in the third quarter. Demand for industrial goods and materials strengthened 3.9% as manufacturers’ activity increased. Canadians continued to spend more on travel services (+11%) as uncertainty from the threat of SARS and the war in Iraq subsided and the stronger value of the Canadian dollar made travel in the U.S. less expensive.

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Inventories accumulated

Non-farm inventories were built up nearly $7 billion during the quarter following a draw down of inventories in the third quarter.

Motor vehicle inventory rebuilt

Business investment in retail and wholesale trade inventories was largely responsible for the buildup. Retail motor vehicle inventories increased $3.7 billion as imports rose and sales of new motor vehicles declined. Manufacturing inventories were unchanged as increases in inventories of chemical producers were largely offset by declines in inventories of primary metals and electrical and electronic products.

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Modest increase in plant and equipment expenditure

Business investment in plant and equipment weakened to 0.6% from 3.4% in the third quarter, which was the strongest quarter of growth in four years.

Fourth consecutive quarter of increased plant and equipment spending

Growth in spending on non-residential structures slowed to 1.0%. Spending on engineering construction advanced to 2.0%, a second quarter of growth, while spending on building construction fell 1.7%

Spending on machinery and equipment edged up 0.3% following 4.5% growth in the third quarter. Lower machinery and equipment prices, the result of the stronger Canadian dollar relative to the U.S. dollar, has stimulated investment growth since the first quarter of 2003. Spending on industrial machinery increased 2.4%, the fifth consecutive increase. Offsetting some of these increases, spending on trucks and on transportation equipment other than automobiles decreased.

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Consumer spending flattened out

Consumer spending was unchanged in the quarter following 8 years of quarterly growth. Average growth in personal expenditures over this period has been slightly less than 1% per quarter.

Purchases of motor vehicles dropped

Despite generous incentive programs, new car purchases dropped 8.2% and new truck purchases, including minivans and SUVs, plummeted 16%. New car purchases have fallen in the last five quarters. Purchases of semi-durable goods, including clothing and footwear, slipped 0.2%. Expenditures on energy fell as average temperatures were warmer than usual.

Spending on services increased, offsetting some of these declines. The resurgence of tourism-related spending including restaurant meals, accommodation and air transport, continued in the fourth quarter from the third quarter. Consumer spending on university education picked up in the fourth quarter with the influence of the double cohort in Ontario.

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Housing investment slowed

Growth in investment in residential construction slowed in the fourth quarter to 2.4%, matching the average quarterly growth of the last five years.

Spending on transfer costs dropped 4.7% as the resale housing market slowed. Multiple listing service unit sales fell 5.2%. Spending on new housing increased to 4.7%, helped by historically low interest rates. Housing starts increased in the eastern provinces while slowing in the western provinces. Spending on renovations was up 2.2%.

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Government spending edged up

Net government spending on goods and services edged up 0.1%, decelerating for the second consecutive quarter. Almost all of the increase was in the labour component and reflects more hours worked. On a government sub-sector basis, about half of the current dollar increase in spending was for health-care and education with the remainder evenly split between the federal and provincial governments.

Government continued to build surplus

The combined government surplus (annualized national accounts basis expressed in nominal terms) rose to $19 billion. The larger surplus resulted mainly from higher incomes, particularly federally-collected personal income taxes, higher taxes on products through sales and motive fuel taxes, increased investment income from royalties and remittances by government business enterprises, and higher profits from liquor and gaming. Outlays grew much more modestly with almost all of that increase from purchases of goods and services.

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Corporate profits and labour income made moderate gains

Corporate profits rose 3.5% in the fourth quarter, closing in on the record level set in the first quarter of 2003. The transportation and mining industries led, while oil and gas producers lost ground.

Labour income recorded a solid 0.9% gain, as employment picked-up after a lack-lustre first three quarters of 2003.

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2003 year-end review

Growth in GDP slowed to 1.7% in 2003 from 3.3% in 2002. Growth in the past three years has averaged just over 2.0% compared to almost 5.0% in the period from 1998 to 2000.

Contributions to percent change in GDP

Consumer spending was the greatest contributor to growth in 2003. Exports were the greatest impediment to growth with the value of the Canadian dollar increasing by 12% against the U.S. dollar (based on annual average noon spot rates). Prices, as measured by the chain price index for GDP, advanced 3.4%, reflecting higher energy prices early in the year. Excluding energy, prices increased 2.3%.

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Consumer spending continues at same pace

Growth in personal spending (+3.3%) matched the average growth of the last decade and was similar to the growth of 2002.

Spending on new cars fell 4.8% following four years where growth averaged almost 10%. Truck sales including vans and SUVs sales slipped 0.7% after surging ahead more than 16% last year. Furniture and floor covering sales remained strong (+8.1%) influenced by the housing boom but slowed from the previous year. Despite an overall increase in spending in services, accommodation, gambling and public transportation (air, rail and bus) fell as the impact of the war in Iraq and the fear of SARS were felt.

Net borrowing soars in response to drop in saving

Labour income grew 3.4%, the lowest growth since 1996. Although employment growth was weak at the beginning of 2003, a surge at the end of the year boosted labour income in the fourth quarter. Employment growth in the services producing industries exceeded growth in the goods producing industries. Disposable income grew by 2.8%, about half of the increase in personal expenditures (nominal basis). As a result, saving by the personal sector plummeted and the saving rate fell to 2.0%, the lowest in decades. Net household borrowing increased $43 billion in 2003 following an increase of $16 billion in 2002.

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Exports slumped

Exports slumped a further 2.1% marking the third consecutive year of decline. Exports had been a strong contributor to growth in the previous decade with growth averaging more than 8%. In 2003, goods exports declined 2.0% with widespread declines while services exports slipped 2.5%.

Exports of industrial goods and materials, and machinery and equipment were the hardest hit. Exports of travel services fell more than 10% impacted by the outbreak of SARS, the war in Iraq and the stronger Canadian dollar. Conversely, imports grew 4.0%, in part the result of a weaker U.S. dollar. Machinery and equipment imports grew almost 4% following two years of decline. Other consumer goods imports jumped 8.7%.

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Housing boom continued

Investment in residential construction continued to grow for a fifth straight year but slowed from the double digit increases in the two previous years.

Fifth year of growth for investment in residential construction, current dollars

Mortgage rates remained low. Housing starts exceeded 218 thousand approaching the record levels set in the late 1980s. Growth in expenditures on renovations accelerated to 9.9%. Growth in transfer costs slowed to 5.1% but remained strong, marking the third strong year for the housing resale market.

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Plant and equipment spending rebounded

Business investment in plant and equipment rebounded in 2003 following a drop in 2002. Machinery and equipment investment was supported by sales of industrial machinery (+11%) and computers and other office equipment (+11%) in tandem with rising imports. Heavy-duty truck purchases increased as the industry renewed its fleet prior to the introduction of new emission standards in January 2004. Investment in engineering construction grew 1.4% while building construction slipped 1.0%, the fourth year of decline.

Inventories built up

Business built up inventories with both farm and non farm inventories increasing. Crop production went up for the first time since 1999, marking a substantial turnaround from 2002 and resulting in a buildup of grain inventories. With the border restrictions to beef as a result of mad cow scare, the number of cattle on Canadian farms has increased. Non-farm inventories increased, particularly trade inventories as both wholesalers and retailers added to their stocks.

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Profits strengthened

Profits reached record levels in 2003, surpassing levels set in 2000. Profit growth was led by the oil and gas producers, wholesalers and retailers. Continued increases in undistributed profits coupled with modest increases in capital acquisitions left the corporate sector with improved balance sheets, and a record net lending position.

Continued growth in government spending

Government spending on goods and services grew 3.0% in 2003, the same rate as 2002. Since 1997, the last year in a string of four years of decline in government spending, the growth has averaged 2.9%. Much of the increase in 2003 occurred at the provincial and local government levels, including increased spending at hospitals and schools.

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Statistical tables

• Gross domestic product, income-based, current prices and quarterly percentage change
• Gross domestic product, expenditure-based, current prices and quarterly percentage change
• Real Gross domestic product, expenditure-based, quarterly percentage change
• Real Gross domestic product, expenditure-based, annualized percentage change
• Contributions to percentage change in real Gross domestic product, expenditure-based
• Gross domestic product, implicit chain price indexes
• Financial market summary table

Information on methods and data quality available in the Integrated Meta Data Base: 1804, 1901 and 2602.