Canada's Q3 GDP Growth Slows Down Despite Rising Household Spending
In the third quarter of 2024, Canada's real gross domestic product (GDP) increased by 0.3%. This indicates a slowdown compared to the 0.5% growth observed in the first and second quarters of the year. The GDP growth was restrained by various factors, including slower accumulation of non-farm inventories, a decrease in capital investments, and a decline in exports.
Despite the overall GDP growth, GDP per capita decreased by 0.4%, marking the sixth consecutive quarter of decline. However, household spending emerged as a significant growth factor, rising by 0.9% in the third quarter. Notably, there were marked increases in the purchase of new trucks, vans, and sports utility vehicles, as well as in financial services. This increase came after a period where per capita household spending had decreased in six out of the previous eight quarters, although there was a slight increase of 0.2% in the last quarter.
Government spending also contributed to economic activity, increasing by 1.1%, marking the third consecutive quarter of growth following a decline in the fourth quarter of 2023. This increase was consistently seen across all levels of government.
The pace of inventory accumulation by businesses slowed, with a $18.5 billion increase in non-farm inventories, indicating a slowdown compared to the previous quarter's $27.8 billion increase. The retail motor vehicle sector and the durable and non-durable goods manufacturing sectors were the main areas where inventory growth slowed.
Investments by businesses in machinery and equipment experienced a significant decline of 7.8%, particularly in airplanes and other transportation equipment and parts. This decline coincided with a decrease in imports of such products. Conversely, investments in intellectual property products by businesses increased by 1.4%, research and development spending rose by 4.2%, and mineral exploration and evaluation expenditures grew by 3.0%.
Investments in the housing sector increased by 0.8%, marking the first expansion since the third quarter of 2023. This increase was primarily driven by rising property transfer costs reflecting resale activity, contrasting with declines in renovation and new construction spending.
Exports of goods and services decreased by 0.3%, with significant declines observed in unrefined gold, passenger cars, light trucks, and travel services. Imports also saw a slight decrease of 0.1%, primarily led by a decline in imports of passenger cars, light trucks, and other transportation equipment.
The GDP deflator, reflecting overall price levels, rose by 0.6% due to price increases in government and household expenditures. However, the drop in export prices contributed to a further reduction in terms of trade.
Employee wages increased by 1.7%, with the finance, real estate, corporate management, and educational services sectors leading this growth. This increase was partly attributed to new collective agreements in Quebec and Ontario. Regionally, Prince Edward Island, Quebec, and New Brunswick saw the highest wage increases, while a significant gold mine closure in Yukon led to a decline.
Household net savings improved; disposable income grew at twice the rate of expenditures. This development was partly due to wage increases and a decrease in interest payments on mortgages and consumer loans. This trend was influenced by the Bank of Canada's policy interest rate cuts totaling 75 basis points during the June-September 2024 period, with additional cuts announced in October. As a result, the household savings rate reached a three-year high of 7.1%.
On the other hand, corporate profits fell by 1.1%, with the motor vehicle industries in manufacturing, wholesale, and retail sectors leading this decline. Nevertheless, the oil and gas extraction and petroleum refining sectors experienced growth due to increased production. The gross operating surplus of financial companies increased by 0.9%, although severe weather affected the surplus of property and automobile insurance companies. Banking sector revenues rose as falling interest rates increased the spread between loans and deposits.