Some takeaways from third quarter Canadian GDP and other data–27 charts

Durable goods consumption expenditure rose at an annualised pace of 9.4% (autos?) in the third quarter; business gross fixed capital formation (Commodities?) has fallen for three quarters in a row following a weak Q4 in 2014; inventory accumulation slowed dramatically (?); imports of goods and services fell for the second straight quarter running off the back of two weak quarters in Q4 2014 and Q1 2015.

The change in net exports that contributed SO MUCH to GDP showed an historically large bounce, shown here as a rolling two month data piece:

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Outside of the net trade position, one key bright spot (with a large consumer debt negative) has been auto sales: but the growth in auto sales has shown a worrying acceleration over the last few years.  Note the following chart showing the growth in car sales and the annualised change in hourly wages drawn from the rolling 5 year increase (i.e. geometric average):

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But retail sales growth overall is sliding (in part due to falls in energy prices):

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Retail sales growth excluding motor vehicles and parts in slowing at a faster rate:

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Motor vehicles and parts sales have been firm post crisis (as in the US); this is of interest given the significant increases in car loans and the lengthening of the repayment periods:

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Residential structure investment has also been an important contributor to domestic demand of late, but you do have to wonder how long this can continue: the following chart shows the divergence between residential structure investment as a % of final domestic demand and domestic demand growth:

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Looking at household final consumption (a narrower measure than final domestic demand) we see that the real increase in household expenditure remains range bound.

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Which is remarkable given that household expenditure as a % of GDP remains at elevated levels: in other words the terms of consumption have weakened over the last 20 years.

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And household and non profit institutions serving households debt to GDP ratios move ever higher:

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As we can see, rising debt accompanied rising GDP growth for a while, and post crisis the two have gone in separate directions:

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We can see here that increases in household expenditure exceeded personal disposable income growth during the 1990s and the early to mid 2000s.   Although falling back post crisis, the relationship between consumer expenditure and income growth has become tighter, yet another relationship suggesting weakness in the economy:

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Both nominal and real GDP growth are closing in on to post crisis lows.  Although not necessarily anything in and of itself (historic cycles clearly show similar troughs during periods of growth) high debt levels and weakening income growth as well as a weak global demand backdrop raise the significance of the slide.

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And wage growth is slowing:

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Led by a number of important sectors:

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Even though trade related sectors have recently picked up:

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And negative demographic influences are showing up in overall wage growth data: health care and social assistance is becoming an ever increasing part of the pie:

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And while the longer trend growth of consumer credit growth is falling (this is a negative for growth) it had shown a growth spurt over the last few two years which may well be topping out, and I would not take this as a positive:

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Overall the tone is weak given the decline in imports, inventories and the likely continued dependence on consumer credit with respect to Auto sales.  

And, while the CPI is indeed falling the Bank of Canada’s core index is ambiguous>

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But you do wonder, you do wonder about the impact of the collapse in commodity prices which has so clearly affected Alberta….

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And you wonder about at least one other important shoe to collapse, that of property, property construction and all the other spin offs that a property boom delivers: Ontario has become increasingly dependent on the residential construction.   The following chart shows this important component has become increasingly important in Ontario’s economy.

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The line showing 3 year change in residential property as a  % of change in GDP reverts to a straight comparison of quarterly annualised changes in Q1/Q2 2015 to end 2014 values.  In fact in the last couple of quarters residential construction has

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And finally, of note, the ratio of non financial corporation inventories to GDP also stands at historical highs.

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In all plenty to think about!

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