Darkening economic clouds
Today’s release of first quarter GDP numbers shows a minus sign:
Real gross domestic product (GDP) edged downÂ 0.1% in the first quarter ofÂ 2008, its first quarterly decline since the second quarter ofÂ 2003. The economy, which had started to lose momentum in the second half ofÂ 2007Â as exports declined, stalled in the first quarter due to widespread cutbacks in manufacturing, most notably in motor vehicles. In addition, weather disruptions hampered economic activity in the quarter. Economic output contractedÂ 0.2% in March. Final domestic demand advancedÂ 0.6% in the quarter on the strength of consumer spending. Inventory accumulation eased considerably in the first quarter, after two quarters of large build-ups.
My quick perusal shows that there is weakening across the board, with investment and consumption being hit.
Growth in business investment in machinery and equipment decelerated toÂ 0.3% in the first quarter, moderated by a downturn in industrial machinery investment. This followed three quarters of gains averagingÂ 3.3%. Increases in investment were registered for automobiles and other transportation equipment. Business investment in machinery and equipment has increased more by thanÂ 60% since the fourth quarter ofÂ 2002, in conjunction with the appreciation of the Canadian dollar.
A pickup in business investment in non-residential structures in the first quarter (+0.9%) was the result of increases in investment in both buildings and engineering. Total business investment in plant and equipment grewÂ 0.6% in the quarter.
… Business investment in residential structures declined in the first quarter, following five quarters of growth. Transfer costs associated with the resale market decreased for a third consecutive quarter, and new housing construction declined. This was partially offset by an increase in renovation activity.
Housing investment, of course, has been a major part of this recent expansion, so this has been expected. Consumer spending â€“ held up recently as the stabilizing force in Canada when compared to the US â€“ is also much weaker:
Personal spending grewÂ 0.8% in the first quarter, down from theÂ 1.8% gain in the fourth quarter ofÂ 2007. The deceleration was largely due to lower expenditures related to travel abroad, which increased substantially in the last half ofÂ 2007. Despite the decline, expenditures related to travel abroad registered their second-highest level ever.
The one bright light, if you can call it that given our climate challenges, is that the oil patch continues to rake it in:
Corporate profits grewÂ 2.4% in the first quarter, fuelled by energy sector earnings.
Wages and salaries and supplementary labour income increasedÂ 1.5%, a deceleration from the previous quarter.
And then there is this oddity, pulled from the previous quote about consumer spending, and seemingly at odds with conditions in the auto industry:
Purchases of new and used motor vehicles advancedÂ 7.2%, spurred by widespread sales incentives, low interest financing packages, and the Goods and Services Tax rate reduction. It was the largest gain since the fourth quarter ofÂ 2001.
And on the net export side:
Exports of goods and services fell for the third consecutive quarter, in line with the third consecutive decline in manufacturing output. TheÂ 1.1% decline in the first quarter ofÂ 2008Â stemmed from a sharp decrease in exports of automotive products, as Canadian manufacturers were hampered by a strike at a major supplier of automotive parts in the United States.
Excluding automotive products, exports grewÂ 0.8% in the first quarter. Sales of forestry products abroad declined for a third consecutive quarter, as weakness in the US housing market continued.
Exports of services registered aÂ 2.3% drop, largely due to lower exports of commercial services. Conversely, energy products, with the exception of natural gas, recorded a strong gain in the quarter, reversing the weakness recorded in the last half ofÂ 2007.
Imports declined for the first time since the fourth quarter ofÂ 2006. The decrease was widespread. Automotive products pulled imports downward, corresponding to a drop in motor vehicle inventories. Purchases of other consumer goods from abroad also lost ground. Machinery and equipment imports retreated after three quarters of substantial increases.
So that is C + I + X all signicantly weaker, though imports (M) are down more than exports so (X-M) is, oddly contributing on the plus side. That leaves G, and a federal government that has brazenly said it will fight deficits not downturns. Oh, how 1930s of them!