Ironically, Statistics Canada’s third-quarter GDP report on Black Friday showed the growth rate of consumption being cut in half. Final consumption expenditure grew by 0.4% in the third quarter compared to 0.8% in the second quarter.
Household spending growth fell to 0.6% from 0.9%. Government consumption growth plummeted to 0.1% from 0.4%. In other words, public-sector austerity is taking a bite out of economic demand.
Business investment grew by 0.6%, its best quarter so far this year but still lagging the overall quarterly growth rate of 0.7%. The economy grew faster than household consumption, government spending and business investment because companies produced output that went into inventories.
Indeed, a $10-billion investment in inventories accounted for almost all of Canada’s $11-billion of GDP growth in the third quarter. In other words, corporate Canada is storing products it cannot sell because of slowing consumer spending, government austerity and falling exports.
This build-up of supply is troubling because, if it continues, companies will cut back production. To boost the economy, the federal government should use the billions of unspent dollars in its budget to improve Employment Insurance and accelerate infrastructure investment.
- What Have we Learned From the Financial Crisis? Part 4: Bernard Vallageas (March 29th, 2014)
- What Have we Learned From the Financial Crisis? Part 3: Mario Seccareccia (March 25th, 2014)
- What Have we Learned From the Financial Crisis? Part 2: Louis-Philippe Rochon (March 25th, 2014)
- What Have we Learned From the Financial Crisis? Part 1: Marc Lavoie (March 25th, 2014)
- Canada’s Luxury Index is through the roof (February 6th, 2014)