Current economic conditions

The economy accelerated in the second half of the year, with third quarter real gross domestic product (GDP) posting its best increase of the year and strong job gains in October and November.

Unlike the housing-driven growth in 2004, business investment and net exports contributed over half of growth in the third quarter, after only small gains last year.

Conversely, the contribution of household demand (consumer spending and housing) fell from over 80% in 2004 to less than half. Household spending was mixed. New house construction fell again, but the market for existing homes remained strong. Housing and autos remained slow in October.

Energy prices surged for exports. Meanwhile, the rising dollar dampened import prices. This boosted command-based GDP (which adjusts GDP for the terms of trade) by 2.8%, one of its largest increases ever. Command GDP measures what Canadians can buy, not what they can produce.

While profits continued to rise steadily, this has not been at the expense of labour income. It accelerated for a fifth straight quarter to 1.7%, keeping well ahead of consumer price increases despite the spike in energy prices. Alberta led the nation in labour income growth, up 9% in the past year, led by a 16% gain in its mining and oil and gas industry.

The booming oilsands region of Athabasca saw the share of its population holding a job move to a Canada-high of 73.3%. And despite having the highest participation rate (75.2%), its unemployment rate was the lowest at 2.5% thanks to an 8% increase in jobs in the past year. These gains were partly offset by declines in some other parts of Alberta, reflecting the fierce competition in some industries for employees.

Household demand in Ontario continued to lag behind the rest of the country. Retail sales posted a second straight decline of more than 1%. In October, housing starts fell to their lowest level since 1998. Shipments were down again, led by the auto industry. Layoffs were announced by North American automakers, but demand was firmer for Japanese models, which now account for more than 40% of the province's auto output, compared with 25% five years ago.

In Quebec, manufacturing was sustained by the resource sector. Refineries were responsible for the bulk of the 1.6% jump in shipments, due to soaring prices and a surge in exports caused by the shortages following Hurricane Katrina. After ranking eighth in the value of Quebec's industry shipments in 2000 and sixth in 2004, refineries climbed to second place in September, not far behind the food industry. Close to 30% of Canada's refining is in Quebec. Rising gasoline prices continued to dampen auto sales again, while housing starts were off their peak for the year. Lumber shipments increased for reconstruction in the United States.

Retail sales in the West finally succumbed to the upswing in gasoline prices, but the decline in demand was less pronounced and less widespread than in other parts of the country. Since January, British Columbia and the Prairies have posted much higher retail sales growth than Ontario and Quebec, keeping the national average at 3.2%, close to last year's pace. Migration to the West has increased, but much less than it did in the early 1980s.

Definitions, data sources and methods: survey numbers, including related surveys, 1901, 2101, 2202, 2203, 2301, 2406, 2602 and 3701.

The December issue of Canadian Economic Observer, Volume 18, no. 12 (11-010-XPB, $25/$243) is now available.

The December issue of Statistics Canada's flagship publication for economic statistics, Canadian Economic Observer, also summarizes the major economic events that occurred in November and presents two feature articles titled: "Is Canada's manufacturing lagging compared with the US?" and "Wholesalers of pharmaceutical products: A vibrant industry". A separate statistical summary contains a wide range of tables and graphs on the principal economic indicators for Canada, the provinces and the major industrial nations.

Visit Canadian Economic Observer's page online. From the Canadian Statistics page, choose National Accounts, then click on the banner ad for Canadian Economic Observer.

For more information, contact Philip Cross (613-951-9162; ceo@statcan.gc.ca), Current Economic Analysis Group.