Gross domestic product by income and by expenditure

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First quarter 2009

Real gross domestic product (GDP) declined 1.4% in the first quarter, the largest quarterly decrease since 1991. Both domestic and international demand continued to weaken.

Lower spending in Canada and the United States, particularly business investment in plant and equipment, led to a sharp decline in Canada’s exports and imports. Business investment in Canada fell at the fastest rate since 1982. Final domestic demand was down 1.5% as personal spending, particularly on durable goods, continued to decline. Corporate and personal income also fell in the quarter.

Real gross domestic product (GDP) contracted at an annualized rate of 5.4% in the first quarter, compared to a 5.7% decline in the U.S. economy.

Consumer spending contracts again

Consumer spending on goods and services contracted 0.4%, a slower pace of decline than the previous quarter. Spending on durable goods (-1.8%) was the major contributor to the first quarter decline, but did not drop as much as in the previous quarter. Purchases of services slipped for a second consecutive quarter.

Purchases of motor vehicles continued to decline (-1.8%) in the first quarter as did spending on motor vehicle repairs and parts (-6.2%). Consumers reduced spending on household appliances (-2.7%) as well as furniture, carpets and other floor coverings (-3.6%), reflecting a weak housing market.

Net travel spending was down 6.3%, albeit less than the marked decline posted in the fourth quarter of 2008 (-12%). Canadians spent less on foreign travel, while non-residents spent less in Canada.

Spending on food, beverage and tobacco items remained essentially unchanged after a decline of 0.8% in the fourth quarter of 2008. Spending on restaurants and accommodation services declined for the third consecutive quarter.

Consumers increased their spending on recreation, entertainment, education and cultural services in the first quarter.

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Chart B.1 Household demand still weak

Decline in exports intensifies

Exports of goods and services dropped 8.7% in the first quarter, a faster rate of decline than in the fourth quarter (-4.8%). Exports of automotive products were down for the eighth consecutive quarter, falling an additional 33%.

Automotive product exports have tumbled by almost 60% since the first quarter of 2007. Forestry products continued to fall, a trend dating back to the first quarter of 2006. Decreases in industrial goods and materials as well as machinery and equipment also persisted.

Exports of services were down 3.7% in the first quarter, following two small quarterly increases.

Imports down again

Imports were down for a third quarter in a row, falling 11%, as both goods and services imports declined. Weak domestic demand led to decreases in nearly all major import categories. The Canadian dollar depreciated 2.6% against its U.S. counterpart in the quarter.

Imports of automotive products (-32%) and machinery and equipment (-13%) both fell for a second consecutive quarter, representing almost 60% of the decline in imports. Imports of “other consumer goods” fell 6.8%, reflecting a softening in personal sector spending.

Imports of services decreased 4.1%, the fifth consecutive quarterly decline.

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Business investment down sharply

Business investment in machinery and equipment was down 11% in the first quarter, as investment declined in all categories. However, the drop was particularly pronounced for investment on industrial machinery as well as computers and other office equipment, representing over half of the total decrease.

Businesses reduced investment in non-residential structures by 3.8%. A contraction in engineering construction activity was the major contributor.

Chart B.2 Machinery and equipment investment declines

Investment in residential structures decreases

Investment in residential structures fell again in the first quarter (-5.7%), driven down by a drop in new housing construction. Resale activity, as reflected in ownership transfer costs, registered a small decline in the quarter (-2.3%), following a large decrease in the fourth quarter of 2008 (-25%).

Non-farm inventories fall

Non-farm inventories were drawn down for the first time since the second quarter of 2004. Manufacturers, retailers and wholesalers all lowered their inventories.

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Chart B.3 Non-farm inventories drawn down

Despite inventories being drawn down, a larger drop in sales pushed the economy-wide stock-to-sales ratio up, equivalent to 71 days of sales compared to 68 days the previous quarter. Stock-to-sales ratios rose in both the manufacturing and wholesale sectors.

Farm inventories accumulated in the first quarter but at a much slower pace than in 2008.

Prices fall for the second quarter in a row

The price of goods and services produced in Canada fell 1.7%, following a 2.9% drop in the fourth quarter of 2008. A sharp drop in prices for natural resources drove the decline. Export prices (-6.7%) fell more quickly than import prices (-1.6%).

The price of final domestic demand edged up 0.2% in the first quarter as consumer prices remained flat.

Purchasing power declines

Real gross domestic income (GDI), a measure of Canada’s purchasing power, fell 3.0% in the first quarter (-6.2% year over year). Canada’s terms of trade, a measure of export prices relative to import prices, deteriorated for the third consecutive quarter as commodity prices fell and the Canadian dollar depreciated relative to its U.S. counterpart. As a result, the decline in real GDI was much sharper than real GDP; the third consecutive quarter this has occurred.

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Economy-wide incomes down sharply

Nominal GDP decreased 3.0% in the quarter, a second consecutive sharp drop. Corporate profits fell 24% in the first quarter following a similar decrease in the fourth quarter of 2008. Both financial and non-financial industries recorded lower profits.

Profits recorded by government business enterprises declined 4.0%, after larger decreases in the previous two quarters.

Corporate outlays did not fall as quickly as corporate incomes, resulting in $55 billion in corporate saving in the first quarter, almost $70 billion less than the third quarter of 2008.

Chart B.4 Corporate profits drop sharply again

Labour income down

Labour income (in nominal terms) fell 0.7% in the first quarter. Employment was down (-1.4%) as were average hours worked. Wages and salaries in goods producing industries led the decline, particularly the manufacturing and construction industries.

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Chart B.5 Labour income declines

The personal saving rate was 4.7%, similar to the previous quarter. Prior to the fourth quarter of 2008, the personal saving rate had been below 4% for ten consecutive quarters.

Unincorporated business net income fell. Net income of unincorporated farms retreated as a result of lower grain prices.

The debt service ratio for the personal sector (the proportion of interest expenses to personal disposable income) was 7.9% in the first quarter, down slightly from the previous quarter. Payments on both mortgage interest and interest on consumer debt were lower.

National saving declines

National saving fell sharply in the first quarter (-37%), similar to the fourth quarter of 2008. Corporate saving was down, while the government sector saving (all levels combined) was negative for the first time since the first quarter of 2002. At 6.1%, the national saving rate in the first quarter was at its lowest since 1998.

Chart B.6 National saving declines again

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Data tables

• Table B.1 Gross domestic product, income-based, current prices and quarterly percentage change
• Table B.2 Gross domestic product, expenditure-based, current prices and quarterly percentage change
• Table B.3 Real gross domestic product, expenditure-based, quarterly percentage change
• Table B.4 Real gross domestic product, expenditure-based, annualized percentage change
• Table B.5 Contributions to percentage change in real gross domestic product, expenditure-based
• Table B.6 Gross domestic product, implicit chain price indexes

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