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GDP

Gross domestic product, income and expenditure, fourth quarter 2015

Ottawa - Real gross domestic product (GDP) grew 0.2% in the fourth quarter, following a 0.6% increase in the third quarter. Lower final domestic demand and exports both contributed to the slower growth.

Final domestic demand decreased 0.2% after flat second and third quarters. The decline was the result of lower business gross fixed capital formation, mainly in non-residential structures.

Business gross fixed capital formation decreased 1.7%, the fourth consecutive quarterly decline, as business investment in non-residential structures and machinery and equipment fell 3.3%.

Household final consumption expenditure rose 0.2%, following a 0.5% increase in the third quarter. Expenditure on services (+0.4%) largely contributed to the growth. The last decline in household spending occurred in the first quarter of 2009.

Final consumption expenditure of the government sector increased 0.4% after a flat third quarter.

Exports of goods and services decreased 0.6%, following a 2.6% gain in the third quarter. Imports were down 2.3%, the third consecutive quarterly decline.

Businesses reduced their inventories by $4.0 billion, after accumulating $1.0 billion in the previous quarter. Non-farm inventories were down $3.6 billion, after a $2.3 billion accumulation in the third quarter.

Expressed at an annualized rate, real GDP rose 0.8% in the fourth quarter, after increasing 2.4% in the third quarter. By comparison, real GDP in the United States advanced 1.0%.

Household spending slows

Household final consumption expenditure rose 0.2% in the fourth quarter, decelerating from a 0.5% increase in the third quarter. The advance in the fourth quarter was driven by higher expenditure on services (+0.4%). Outlays on goods edged up 0.1%, as lower spending on non-durable goods (-0.3%) offset gains in durable (+0.4%) and semi-durable (+0.6%) goods.

Expenditure on recreation and culture (+0.7%), clothing and footwear (+0.9%) and transport (+0.2%) all contributed to growth in household spending. Vehicle purchases edged up 0.1%, following two consecutive quarters of strong growth.

Investment in housing increases

Business investment in residential structures advanced 0.4% in the fourth quarter, the fourth consecutive quarterly increase. Both ownership transfer costs (+3.5%), which reflect movement in the resale market, as well as renovations (+0.7%), were up in the fourth quarter, after decreasing in the third quarter. Business investment in new housing construction declined 1.2%, after a 3.1% gain in the third quarter.

Further declines in business investment

Business investment in non-residential structures and machinery and equipment fell 3.3% in the fourth quarter.

Investment in non-residential structures decreased 3.9%, continuing the downward trend seen over the last two years. Lower investment in engineering structures (-4.2%) largely contributed to the decline in the fourth quarter, in the wake of lower oil prices and weakened investment in the oil and gas sector. Business investment in non-residential buildings (-2.9%) also continued to fall.

Business outlays on machinery and equipment fell 2.3%, the fourth consecutive quarterly decline, with computers and computer peripheral equipment (-7.9%) and communications and audio and video equipment (-8.9%) leading the decrease in the fourth quarter.

Business investment in intellectual property products was down 1.2%, as mineral exploration and evaluation, affected by lower energy prices, fell 8.2% following larger declines earlier in the year.

Business inventories down

Business investment in inventories was reduced by $4.0 billion, as a result of a drawdown of mostly non-farm stocks in the fourth quarter, following an accumulation of $1.0 billion in the third quarter.

Farm inventories of grain increased by $1.1 billion, following seven consecutive quarters of depletion. Inventories of other crops were reduced by $1.6 billion.

Retailers' inventories of durable goods declined by $3.4 billion, mainly as a result of lower stocks of motor vehicles (-$4.0 billion), which had accumulated substantially over the last two years. Wholesalers' inventories of non-durable goods were down $1.4 billion in the fourth quarter. Manufacturers' inventories of non-durable goods declined by $1.4 billion.

Despite the drawdown in inventories in the fourth quarter, sales declined at a faster pace than stocks, leading to an increase in the economy-wide stock-to-sales ratio to 0.763.

Exports decline

Exports of goods and services were down 0.6% in the fourth quarter, following a 2.6% gain in the third quarter. Exports of goods decreased 0.5%, with aircraft and other transportation equipment and parts (-10.4%) contributing the most to the decline.

Exports of energy products (-2.8%) and farm, fishing and intermediate food products (-2.5%) also fell. Motor vehicles and parts grew 1.7%, led by a 4.6% increase in exports of passenger cars and light trucks.

Service exports decreased 0.7%, following a gain of similar magnitude in the third quarter. The decrease was attributable to lower exports of commercial services (-1.0%).

Imports decrease

Imports of goods and services fell 2.3% in the fourth quarter, after decreasing 0.6% in the third quarter.

Imports of goods were down 2.5%, led by electronic and electrical equipment and parts (-6.2%), consumer goods (-3.1%) and energy products (-8.1%). An increase in aircraft and other transportation equipment and parts (+5.6%) partially offset these declines.

Imports of services decreased 1.3%, the second consecutive quarterly decline. Imports of transportation services (-2.8%) and travel services (-1.9%) contributed to the decrease, in tandem with the weaker Canadian dollar.

Real gross domestic income declines

Real gross domestic income, a measure of the real purchasing power of income earned from Canadian production, decreased 0.3% in the fourth quarter. The decline reflected a continued weakening in the terms of trade, which fell for a fifth consecutive quarter. (Terms of trade are measured as export prices relative to import prices.)

Export prices declined 1.0% in the fourth quarter, while import prices were 0.7% higher, influenced by a depreciation in the exchange rate. The price of final domestic demand rose 0.3%. The GDP implicit price index edged down 0.1%.

Nominal gross domestic product growth slows

The growth of nominal GDP slowed to 0.1% in the fourth quarter, following a 0.8% gain in the third quarter.

Compensation of employees rose 0.7%, as a result of increases in both wages and salaries (+0.7%) and employers' social contributions (+0.9%). Wages and salaries were up 0.4% in goods-producing industries, led by a 2.0% gain in manufacturing, while they rose 0.8% in services-producing industries, driven by gains in professional and personal services industries (+1.1%) and finance, real estate and company management (+1.8%).

The gross operating surplus declined 1.6%, following a 1.4% increase in the third quarter. The gross operating surplus of financial corporations was down 8.2%, while that of non-financial corporations fell 1.2%.

Modest increase in household disposable income

Household disposable income increased 0.5% in the fourth quarter, with household final consumption expenditure keeping pace. As a result, the household saving rate was unchanged from the third quarter at 4.0%.

The household debt service ratio (defined as household mortgage and non-mortgage payments divided by disposable income) fell from 14.00% in the third quarter to 13.96% in the fourth quarter. Household disposable income outpaced the growth in obligated payments.

The national saving rate fell for a fifth consecutive quarter, reaching 2.8% in the fourth quarter. National disposable income edged up 0.1%.

Annual 2015

Real GDP advanced 1.2% in 2015, about half the pace recorded in 2014, as lower business gross fixed capital formation constrained economic growth. Final domestic demand grew 0.5% after increasing 1.6% in 2014.

Real gross domestic income fell 1.1%, following a 2.0% increase in 2014. Canada's terms of trade declined 6.9%, after decreasing 1.3% in 2014. Falling oil prices contributed to a 3.1% decline in overall export prices, while a depreciating dollar contributed to a 4.1% increase in import prices. As a result, the implicit price of GDP fell 0.5% in 2015, the first decline since 2009.

Business gross fixed capital formation contracted 4.8%, following five consecutive annual increases. The decline was mainly attributable to a 12.7% decrease in business investment in non-residential structures.

Business investment in residential structures increased 3.9%, after advancing 2.5% in 2014. Outlays on new construction (+4.1%) and renovations (+1.4%), as well as ownership transfer costs (+8.0%) all increased.

Businesses added $4.5 billion to inventories in 2015, following an accumulation of $9.9 billion in 2014.

Household final consumption expenditure grew 1.9% after advancing 2.6% in 2014, as outlays on goods (+1.7%) and services (+2.1%) both increased. Household spending on durable (+3.3%), semi-durable (+2.4%) and non-durable (+0.7%) goods was higher.

Exports of goods rose 3.4%, while those of services were up 0.9%. Overall, exports advanced 3.0%. Imports of goods increased 0.2%, while imports of services were flat. Overall, imports edged up 0.1%.

Compensation of employees (in nominal terms) increased 2.6% in 2015, the slowest pace since 2009. After advancing 6.2% in 2014, the gross operating surplus of corporations fell 5.5% in 2015, as oil prices declined.

Household disposable income grew 3.9% in 2015, a faster pace than the 3.0% growth rate in 2014. Combined with slower growth in household final consumption expenditure, the household saving rate increased from 4.2% in 2014 to 4.4% in 2015.

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