Global| Nov 30 2006Canada GDP Slows in Q3: Temporary Easing -- or Not?
Summary
The Canadian economy slowed in Q3, according to the national accounts array published today by Statistics Canada. GDP grew only 1.7% at an annual rate from Q2, slower than Q2's 2.0% and also less than the 2.0% widely expected by [...]
The Canadian economy slowed in Q3, according to the national accounts array published today by Statistics Canada. GDP grew only 1.7% at an annual rate from Q2, slower than Q2's 2.0% and also less than the 2.0% widely expected by Canadian economists. It was the weakest performance since Q2 2003, when there was a decline of 1.3%. 
The slowdown was not a result of weaker consumer spending; this actually strengthened to 4.2% growth from 3.8% in Q2 and was 4.1% ahead of a year ago, compared with year-on-year growth of 2.5% for total GDP. And private nonresidential fixed investment, often the generator of business cycles, also picked up, growing at a 7.0% pace compared with 5.4% in Q2.Further, net exports, while deteriorating, did so less than in Q2, as that deficit inched outward by only C$0.8 billion, following a sharp widening in Q2 of C$12.2 billion.
So the slowing in this one quarter was due primarily to a marked deceleration in government consumption and to further declines in housing investment. The swing in the government accounts related to the quinquennial census that was taken in mid-May. This created a bulge in government spending from Q4 2005 through Q2 2006. A quick look at the second graph shows the periodic slowdowns following these 5-year censuses, previously taken in 1996 and 2001. 
Residential construction deepened its decline that set in during Q2 after the huge seasonally adjusted advance during last winter, which as we in the US know, was quite mild. Residential investment in Canada jumped 14.2% (annualized) in Q1 and has almost exactly offset that in Q2 and Q3, so the latest figure is very close to the C$68.8 billion in the second half of last year.
These sources of weakness appear to be temporary adjustments to outsized gains earlier. But before dismissing them as mere jiggles in numbers, it gives us pause that the other compilation of Canada's GDP, the industrial product breakdown calculated monthly, showed an outright contraction in September of 0.3%. So the economy ended the quarter on a down note, not a very promising position.
| CANADA: SAAR, Bil.Chn97C$ |
Q3 2006 | Q2 2006 | Q1 2006 | Year- Ago | 2005 | 2004 | 2003 |
|---|---|---|---|---|---|---|---|
| Total GDP | 1192.2 | 1187.1 | 1181.1 | 1162.8 | 1157.7 | 1124.7 | 1088.8 |
| % Chg, AR | 1.7 | 2.0 | 3.8 | 2.5 | 2.9 | 3.3 | 1.8 |
| Personal Consumption | 4.2 | 3.8 | 4.8 | 4.1 | 3.9 | 3.3 | 3.0 |
| Gov't Consumption | 0.7 | 4.9 | 3.3 | 3.3 | 2.7 | 3.0 | 3.5 |
| Business Investment | 1.2 | 1.6 | 10.3 | 5.0 | 7.1 | 8.6 | 6.6 |
| Net Exports (Bil.Chn.97C$) | -23.3 | -22.5 | -10.3 | -- | -2.0 | +19.8 | +30.6 |
Carol Stone, CBE
AuthorMore in Author Profile »Carol Stone, CBE came to Haver Analytics in 2003 following more than 35 years as a financial market economist at major Wall Street financial institutions, most especially Merrill Lynch and Nomura Securities. She has broad experience in analysis and forecasting of flow-of-funds accounts, the federal budget and Federal Reserve operations. At Nomura Securites, among other duties, she developed various indicator forecasting tools and edited a daily global publication produced in London and New York for readers in Tokyo. At Haver Analytics, Carol is a member of the Research Department, aiding database managers with research and documentation efforts, as well as posting commentary on select economic reports. In addition, she conducts Ways-of-the-World, a blog on economic issues for an Episcopal-Church-affiliated website, The Geranium Farm. During her career, Carol served as an officer of the Money Marketeers and the Downtown Economists Club. She has a PhD from NYU's Stern School of Business. She lives in Brooklyn, New York, and has a weekend home on Long Island.
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