December 18, 2013

Canada’s Q3 GDP growth accelerates and nearly matches U.S.

The annualized growth rate of Canada’s “real” (i.e., inflation-adjusted) gross domestic product (GDP) accelerated to +2.7% in the third quarter of this year from +1.6% in the second, according to Ottawa’s official statistics-gathering agency.

Completing the picture for 2013, Statistics Canada says the first-quarter GDP increase was 2.4% annualized.

The latest quarter’s percent change was the fastest rate of gain since the third quarter of 2011, when +6.1% was recorded.

The average of annualized GDP growth over the past four quarters has been +1.9%. This year’s constant-dollar third quarter GDP was also +1.9% versus the third quarter of last year.

Earlier, the Bank of Canada (BOC) estimated that growth for 2013 as a whole relative to 2012 would be +1.6%. That seems reasonable, if possibly a little conservative.

Each year’s official annual GDP percentage change compares the current year’s four-quarter SAAR average with the comparable number from the previous year. If Q4 versus Q3 in 2013 also becomes +2.7% annualized, then this year versus last year will be +1.8%.

There was one extraordinary event in Q3 that helped to bump up the latest quarter-to-quarter reading, an end to June’s construction strike in Quebec.

The Bank of Canada’s GDP growth-rate forecasts for 2014 and 2015 are +2.3% and +2.6% respectively.

U.S. quarter-to-quarter annualized GDP growth rates this year have been +1.1% in Q1, +2.5% in Q2 and +2.8% in Q3. Note the similarity between the Canadian and U.S. Q3 performances.

In “current” dollars (i.e., not adjusted for inflation), the size of Canada’s economy is now $1.9 trillion expressed in “loonies” (i.e., our own currency).

The size of the U.S. economy is $16.9 trillion, calculated in greenbacks.

Converting both GDP levels to Uncle Sam’s dollars, America’s total output level relative to Canada’s is 9.4 times as large.

In this year’s Q3, the annualized growth rate for personal consumption expenditures eased to +2.4% annualized from +3.6% in Q2.

Spending on durable goods in Q3, at -0.4% annualized, stalled versus Q2’s +12.6%.

Investment in residential structures in Q3 (+2.4%) also decelerated versus Q2 (+7.0%), but capital expenditures on non-residential structures reversed a decline, improving to +2.0% as opposed to -2.0%.

A build-up of inventories in both the agricultural and business sectors also helped GDP’s bottom line in the latest quarter. For farmers, 2013 has been a good crop year for canola and wheat.

There is considerable “noise” in the quarter-to-quarter comparisons. To better appreciate underlying trends, it helps to look at average annualized growth rates over the past four quarters.

Consider each of the sub-categories relative to the average annualized GDP gain of +1.9% from Q4 2012 to Q3 2013.

Household consumption expenditures have increased at a faster +2.3% pace, led by durable goods — with motor vehicle sales in the forefront — at +4.5%.

Growth in expenditures on services has been +2.2%.

Investment in residential structures has been +1.0%; in non-residential structures, +2.2%.

Exports of goods have risen +2.0%, while import purchases have trailed, at +1.2%.

It’s apparent the linkage between the Canadian and U.S. economies remains strong. On that note, let’s consider the recent movement in one key American indicator.

It’s a favorite of mine, U.S. initial jobless claims (see accompanying chart). Except in weeks with a holiday, this figure appears in a press release issued on-line every Thursday morning at 8:30 a.m.

Between 2004 and 2008, when the U.S. economy was purring along nicely in top gear, the initial jobless claims figure was consistently in a range of 300,000 to 350,000.

When the recession’s “ton of bricks” fell on activity levels in 2008-2009, the number rose to an almighty 670,000 at its worst. Since then, the level of initial jobless claims has been slowly declining (i.e., improving).

It even dropped below 300,000 in early September of this year. Then the House of Representatives brought government to a near-standstill in the first half of October.

The figure shot back up to a recent-high of 373,000 for the week ending October 5, 2013.

It has been trending down again since the government shutdown was revoked. The latest figure for the week ending November 23 was a quite respectable 316,000.

Continuation of a weekly figure in that ballpark will yield net month-to-month employment in the all-important labour situation report of close to +200,000 jobs.

Such a strong hiring record will help GDP return closer to full capacity growth, which is usually reckoned to be +3.5% to +4.0%.

Now if only the politicians in Washington don’t find some new means to choke off the fuel supply running from the economy’s gas tank to its engine.

For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has an economics blog.

U.S. initial jobless claims (weekly data)

The latest data point is for the week ending November 23, 2013 (316,000).
Data source: U.S. Department of Labor; Chart: Reed Construction Data – CanaData.

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