Darkening economic clouds

Today’s release of first quarter GDP numbers shows a minus sign:

Real gross domestic product (GDP) edged down 0.1% in the first quarter of 2008, its first quarterly decline since the second quarter of 2003. The economy, which had started to lose momentum in the second half of 2007 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 contracted 0.2% in March. Final domestic demand advanced 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 to 0.3% in the first quarter, moderated by a downturn in industrial machinery investment. This followed three quarters of gains averaging 3.3%. Increases in investment were registered for automobiles and other transportation equipment. Business investment in machinery and equipment has increased more by than 60% since the fourth quarter of 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 grew 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 – held up recently as the stabilizing force in Canada when compared to the US – is also much weaker:

Personal spending grew 0.8% in the first quarter, down from the 1.8% gain in the fourth quarter of 2007. The deceleration was largely due to lower expenditures related to travel abroad, which increased substantially in the last half of 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 grew 2.4% in the first quarter, fuelled by energy sector earnings.

Wages and salaries and supplementary labour income increased 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 advanced 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 of 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. The 1.1% decline in the first quarter of 2008 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 grew 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 a 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 of 2007.

Imports declined for the first time since the fourth quarter of 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!

2 comments

  • We have been predicting this contraction for some time now, so it is no real surprise. (we as in pef types) Of course I am hoping that the media will finally catch on that you cannot decimate one’s maufacturing base, and pretend that it is just that “old dying smokestack” industry and nothing to worry about.

    With the last 2 months of increasing unemployment, I would say the given the timing over the next 2-3months I would predict even more dramatic growth in unemployment. I think the eventual other shoe is about to drop. I do recall stating that in March 07, but I for one am a bit surprised at the employment numbers and how they have stood up. Although I do believe we have had some things going on within the labour market that have been delaying the eventual decline in employment.

    Public sector employment was the main engine of growth last year and lower quality jobs were also padding the numbers somewhat.

    We could finally be starting to see some of the downstream jobs of the now missing export oriented jobs, finally being impacted to a point that layoffs will start hitting full force right through the entire economy.

    If we get another two tenths of a point increase in the unemployment, that will be a quite nasty last three months at over a half point increase in unemployment.

    If this occurs and again statscan leads their press release with talk about employment gains but disregards the unemployment increase, we will for sure know that the place has some real issues with balance.

    It was quite bad the last 2 months, and to see the media follow it up with he same spin, was quite sad really. We need to fix the blame for this spiraling right where it needs to be, the harper government and their total lack of insight into running an economy within the modern global economy.

    I am starting to realize that the nutjobs, the economic lunatics and the fringe monkeys are not just at the Frazer Institute. It is much more dangerous than that, they are “running” the country. The economy is running full throttle just as Flaherty stated, but it is heading right into a brick wall.

    When will these libertarians call it a day in their beliefs and ideology on how to run an economy. Or more importantly when will we finally get enough people out their to realize that they need to get these hoodlums out of the economic machine, before they steal all the wealth in the country and export it somewhere else.

    The west’s much heralded employment growth is not the jobs magnet one would expect. Just look at the size of the labour markets and it is quite obvious.

    So I hoe we start getting some proper reporting out of the media, and finally start associating the economic meltdown on the appropriate target. The federal government and their do nothing stance, that we have been witnessing for the last 2 years. We have been screeching about on this site on the concerns over the manufacturing and forestry sectors for some time. Yet the governement keeps painting our economy with quite

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