Black Friday GDP: Consumption Slows, But Inventories Jump

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.

One comment

Leave a Reply

Your email address will not be published. Required fields are marked *