http://www.canadianeconomy.gc.ca/English/economy/overview.html
Core inflation excludes eight of the components of the CPI basket that display the greatest volatility, as well as the effect of changes in indirect taxes on the remaining components.
Sources: Statistics Canada, the Bank of Canada and Human Resources and Social Development Canada.
Household spending was supported by personal income growth of 5.3%, up sharply from 2.9% in the third quarter. With gains in employment and wages, labour income jumped 7.3% after a 1.5% rise in the previous quarter.
In the fourth quarter, real personal disposable income rose 5.5% while per capita real personal disposable income increased 4.1%. The personal savings rate was 0.8%, down from 1.3% in the previous two quarters.
Residential and business investment grow
Residential investment rose 2.4% in the fourth quarter, less than half the pace in the third. Housing starts declined in the quarter, moderating growth in new construction activity to 5.4% from 10.2% in the previous quarter. Spending on renovations rose 5.0%. The home resale market, however, softened, reducing transfer expenditures by 10.1%.
Business investment in plant and equipment grew 7.2%, up from 5.5% in the third quarter. Spending on machinery and equipment increased 14.3%, a second consecutive double-digit gain, while non-residential construction rose 0.4%.
Increased business inventory accumulation
Businesses added $18.7 billion to inventories in the fourth quarter, up from $16.4 billion in the third, thereby contributing to real GDP growth in the quarter. Inventories of retailers and wholesalers rose significantly. With the accumulation in the quarter, the overall inventory-to-sales ratio increased, but remained well below its recent average.
Real exports fall while real imports rise, pushing the current account into deficit
In the fourth quarter, real exports fell 8.5% while real imports rose 10.9%. Real exports declined across major goods categories, reflecting weaker U.S. demand and the continued strength of the Canadian dollar.
Real imports rose in all major categories, except energy and automotive products. North American vehicle sales at dealers fell, reducing imports of parts for the production and export of cars and trucks. The overall import gain reflected robust domestic spending as well as lower relative prices for imported goods. Imports of services increased 37.1% as travel spending abroad by Canadians (including cross-border shopping) soared 84.4%.
Although the terms of trade improved in the fourth quarter as export prices fell less than import prices, the sharp decline in net export volumes resulted in a $7.6-billion narrowing in the trade surplus to $14.1 billion. Similarly, the current account declined by $7.4 billion from a surplus of $5.3 billion to a deficit of $2.1 billion, or 0.1% of nominal GDP (Chart 2).
Corporate profits increase more slowly
Corporate profits rose 2.2% in the fourth quarter after rising 7.9% in the third quarter. Stronger consumer spending boosted profits for retailers and wholesalers. However, weak sales hindered motor vehicle and parts manufacturers’ profits while lower prices reduced the profits of primary metal manufacturers. Overall, profits as a share of nominal GDP decreased modestly to 13.7% in the quarter (Chart 3). While somewhat below the peak at the end of 2005, profit margins remain well above their historical average.
