Oct 02 2018
Overall Growth Trends Higher
While GDP growth was a mere 1.4% in the first quarter of 2018, the second quarter saw a surge rising 2.9%. Additionally, the unemployment rate fell to an average of 5.9% in the second quarter, just below the 6.0% mark of the preceding quarter. Household spending expanded 2.6% in the second quarter, helping drive GDP growth. The headline figures paint the economy in a positive light; however, despite broadly positive trends, exports far surpassed expectations in the second quarter, which masked slowdowns in fixed investment.
Labour and GDP Drivers
In the labour market, the net gain in jobs in the second quarter of 2018 was 23,200, with the largest gains coming from professional, scientific and technical services; accommodation and food services; and transportation and warehousing. On the downside, the wholesale and retail trade, healthcare and social services and other services sectors experienced significant declines. The unemployment rate fell to a low of 5.9% as the labour force grew 76,000 in the quarter. While the employment environment has tightened, not all factors have been positive. Average hourly earnings fell in both June and July, while the number of hours worked during the average workweek increased. The largest declines occurred in the information and culture; recreation; finance and insurance; real estate; agriculture; mining and quarrying; and oil and gas sectors. Household disposable income increased 0.7% in the second quarter, which was a moderate increase from the previous quarter. Nonetheless, low unemployment figures and rising total income have helped push household expenditures higher. Household expenditures accounted for 57.3% of GDP in the second quarter.
Trade activity has been one of the most prominent factors determining the Canadian economy’s performance during the second quarter. NAFTA (North American Free Trade Agreement) issues and tariffs on steel and aluminum have increased uncertainty for investment and trade; however, they have not inhibited overall growth. Export volumes increased 2.9% in the quarter as energy products; consumer goods; and aircraft, aircraft engines and parts all increased significantly. The specific tariffs did affect steel and aluminum manufacturers, but higher prices and demand in the run-up to tariffs have aided export values.
Fixed Capital Investment and Construction Trends
Despite broadly positive trends, not all has been strong for the economy. Residential investment declined in April, May and June. Moreover, while the Canadian economy has also experienced generally positive figures measuring fixed investment and capital expenditures, this investment slowed during the second quarter. Nonresidential investment increased 1.3% during this period, led by industrial investment with a 4.6% gain. With slowing nonresidential investment, output has remained strong from the industrial sector as manufacturing companies experienced solid demand in the second quarter. This broad nonresidential investment has outweighed falling residential activity. However, not all aspects of residential activity have been negative. While new housing construction has slowed, renovations have experienced growth. Overall, the key developments have been the continued uptick in home prices, which raises concerns that asset prices are rising too high as borrowing rates begin moving upward.