Growth in real gross domestic product (GDP) slowed to 0.4% in the third quarter of 2017, following a 1.0% increase in the second quarter. Increased household final consumption expenditure (+1.0%) was the main contributor, while weaker exports (-2.7%) moderated growth. Final domestic demand grew 0.9%, a rate similar to the previous two quarters.
Exports fell 2.7% while imports were flat in the quarter. Exports of goods decreased 3.4% following three quarters of growth. Lower exports of motor vehicles and parts (-9.0%) were the largest contributor to the decline, and were generally attributable to work stoppages and changes to certain models destined for the American market. Exports of metal and non-metallic mineral products (-4.5%), consumer goods (-3.1%) and energy products (-1.9%) also fell. Exports of services grew 0.7% on the strength of commercial services (+2.5%).
Businesses made additions to inventories totalling $17.2 billion in real terms, marking the third consecutive quarter of accumulation. The economy-wide stock-to-sales ratio increased to 0.76 following four consecutive quarterly declines.
Household final consumption expenditure grew 1.0% as households increased their outlays on both services (+1.3%) and goods (+0.6%). The main contributor was increased expenditure by Canadians abroad (+7.2%), in tandem with an appreciating Canadian dollar.
Business gross fixed capital investment slowed to 0.4% from 0.7% in the previous quarter. Investment in non-residential structures (+0.5%), machinery and equipment (+1.5%) and intellectual property products (+0.7%) all increased, albeit at slower rates than in the strong second quarter. Investment in residential structures (-0.4%) fell for a second consecutive quarter.
The compensation of employees rose 1.3% in nominal terms, the strongest growth since the third quarter of 2014, while the gross operating surplus of corporations fell 0.7%.
Exports fell 2.7% in the third quarter, the first decline since the second quarter of 2016. The decrease was led by goods (-3.4%), while exports of services increased 0.7%.
The decline in goods exports was mainly attributable to motor vehicles and parts (-9.0%), particularly passenger cars and light trucks (-11.7%). Metal and non-metallic mineral products (-4.5%), consumer goods (-3.1%) and energy products (-1.9%) also contributed to the decline.
The growth in exports of services was driven by greater exports of commercial services (+2.5%), while exports of other services declined.
Imports were virtually unchanged in the third quarter. Lower imports of goods (-0.4%) were offset by an increase in services (+1.3%).
Imports of goods were lower due to metal and non-metallic mineral products (-6.6%) and aircraft and other transportation equipment and parts (-13.8%). Increases in industrial machinery and parts (+5.0%) and metal ores and non-metallic minerals (+10.7%) tempered the decline.
Growth in imports of services was largely attributable to an increase in travel services (+2.9%).
Export prices fell 3.9% despite the appreciation in the Canadian dollar. Import prices were down 4.1%, and the terms of trade improved slightly.
Household spending increases
Household final consumption expenditure grew 1.0% following a 1.2% increase in the previous quarter.
Outlays on goods slowed to 0.6% after increasing 1.9% in the previous quarter. Growth decelerated in the durable (+1.0%), semi-durable (+0.5%) and non-durable (+0.4%) categories, while outlays on services rose 1.3%.
Expenditure by Canadians abroad (+7.2%) was the main contributor to the growth in household spending in the third quarter. Housing, water, electricity, gas and other fuels (+0.9%) and transport (+1.0%) also contributed.
Housing investment weakens
Investment in residential structures fell 0.4%, following a 0.9% decline in the second quarter. This was the first time since the first quarter of 2013 that housing investment fell for two consecutive quarters.
Ownership transfer costs, which reflect activity in the resale housing market, fell 4.7% following a 5.1% decline in the second quarter. Renovations edged down 0.2%, while investment in new construction rose 1.7%.
Business non-residential investment slows
Business gross fixed capital formation slowed to 0.4% growth in the third quarter, after increasing 0.7% in the previous quarter, with reduced investment in residential structures partly offsetting gains in all other areas. Business investment in machinery and equipment, non-residential structures, and intellectual property products all grew at a slower pace than in the previous quarter.
Increased investment in machinery and equipment (+1.5%) largely contributed to overall growth, as outlays on industrial machinery and equipment grew 5.5%.
Investment in non-residential structures (+0.5%) rose on increased investment in non-residential buildings (+3.1%). Engineering structures declined 0.4% after advancing 2.6% in the previous quarter.
Intellectual property products increased 0.7%, with software (+1.7%) and research and development (+0.5%) contributing to the growth. Business investment in mineral exploration and evaluation fell 3.2% following strong growth in the previous two quarters.
Inventories build up
Businesses added $17.2 billion to inventories in the third quarter, the largest accumulation since the first quarter of 2014. The quarterly stock-to-sales ratio increased to 0.76 following four consecutive quarterly declines.
Wholesalers’ inventories rose $6.4 billion, mainly in durable goods. Retailers added $5.4 billion to stocks, with more than half of the build-up ($2.9 billion) in motor vehicles, in tandem with the sharp decline in exports of passenger cars and light trucks. Manufacturers’ inventories rose $4.3 billion on larger inventories of non-durable goods.
Farm inventories were reduced by $412 million, the fourth consecutive quarterly draw-down.
Labour compensation increases
The compensation of employees increased 1.3% in nominal terms in the third quarter, a quicker pace than in the previous 11 quarters. Wages and salaries rose 1.9% in goods-producing industries and 1.1% in services-producing industries. Regionally, Ontario and Quebec continued to fuel wage growth in the third quarter. In addition, employees of the federal core public administration continued to receive retroactive salary payments in the third quarter related to new collective agreements.
Nominal growth in household final consumption expenditure (+1.0%) outpaced that of household disposable income (+0.8%), which was tempered by lower dividends received (-4.6%) and higher interest paid on consumer credit (+5.9%). The household saving rate consequently fell from 2.8% in the second quarter to 2.6% in the third quarter.
Obligated principal and interest payments on consumer debt rose at a faster rate (+1.3%) than disposable income in the third quarter, and the household debt service ratio increased for the third consecutive quarter to 13.88.
Corporate earnings weaken
The gross operating surplus of corporations fell 0.7% in the third quarter, compared to a flat second quarter, as weakening international sales resulted in inventory accumulation. The gross operating surplus of non-financial corporations declined 0.8%. Similarly, financial corporations’ gross operating surplus was down 0.3%.