: Ontario Economic Accounts - Third Quarter of 2009

THIRD QUARTER 2009 SUMMARY

• Ontario’s real Gross Domestic Product (GDP) increased 0.5% in the third quarter of 2009, the first gain following four consecutive quarterly declines.  Canadian real GDP rose 0.1% in the third quarter while the U.S. economy advanced 0.6%.
• GDP growth reflected gains in all major expenditure categories including consumer, business investment and government spending.
• Strong gains in consumer and business confidence supported Ontario’s final domestic demand, which advanced 1.4%, following a 0.2% increase in the previous quarter.
• Consumer spending, which accounts for about 63% of Ontario real GDP, increased 1.0%, following a 0.5% gain in the second quarter.  Consumers increased their purchases of autos, furniture and appliances, clothing and footwear and natural gas in the third quarter.
• Investment in residential construction increased 0.6%, reflecting a strong resale market — spending on ownership transfer costs rose 10.9% — and higher renovation activities (+5.8%).  These more than offset an 11.2% decline in the value of new housing construction.
• Business investment on plant and equipment rebounded strongly (+7.6%) as machinery and equipment investment spending advanced 11.0%, more than offsetting a 4.0% decline in non-residential construction spending.
• Businesses continued to reduce inventories, cutting stocks by $3.7 billion ($2002) in the third quarter.  This was significantly less than the $6.5 billion reduction in the second quarter. 
• Both exports (+4.2%) and imports (+6.5%) rebounded following three consecutive quarters of declines. However, Ontario’s trade surplus narrowed to $0.7 billion ($2002) from $6.5 billion in the second quarter.
• In current dollars, GDP increased by a solid 0.9% in the third quarter, the first gain following six consecutive declines. Economy-wide prices, as measured by the GDP implicit price index, increased 0.5% in the third quarter following a 0.3% second quarter gain.
• On an industry basis, economic production increased 0.6% in the third quarter of 2009.  Production of goods-producing industries increased 0.3%, while services-producing industries posted a gain of 0.7% in the quarter.

ONTARIO ECONOMIC ACCOUNTS: HIGHLIGHTS
(% change from previous period)
	2007	2008	2008q4	2009q1	2009q2	2009q3
Real GDP (Chained $ 2002)	2.3	-0.5	-1.5	-2.1	-0.9	0.5
(annualized rate)			-6.0	-8.3	-3.5	1.9
Personal spending	3.7	2.6	-1.2	0.2	0.5	1.0
Government spending	3.7	2.5	-1.7	-0.2	0.8	0.9
Residential construction	2.2	-2.3	-8.1	-3.9	0.8	0.6
Non-residential construction	10.9	-6.3	-3.7	-7.4	-5.0	-4.0
Machinery & equipment	1.4	1.3	-6.7	-11.5	-3.3	11.0
Final Domestic Demand	3.7	1.9	-2.3	-1.2	0.2	1.4
Exports	1.5	-6.3	-6.9	-10.4	-3.3	4.2
Imports	4.0	-2.8	-9.8	-13.1	0.0	6.5
Business inventories (Chained $2002 billions)	5.6	4.4	1.4	-9.2	-6.5	-3.7
Nominal GDP ($ Current)	4.5	0.4	-2.4	-2.0	-0.6	0.9
Corporation profits	2.2	-14.5	-28.1	-18.5	-10.6	7.3
Personal income	5.0	3.8	0.2	-0.8	-0.4	0.1
Personal disposable income	4.4	4.9	0.1	-0.4	0.6	0.1
Implicit price index, GDP	2.2	0.9	-0.9	0.2	0.3	0.5

EXPENDITURE AND INCOME DETAILS

Consumer Spending Continues to Strengthen

Driven by strengthening consumer confidence and moderate price gains, real consumer spending increased 1.0% in the third quarter, posting its third consecutive quarterly gain.  

Spending on consumer durables (+3.9%) and motor vehicle and parts (+5.7%) in particular, led the overall growth in personal expenditures. Spending on furniture and appliances rebounded 3.0%, after falling in the previous two quarters by an average rate of 2.0%.

Spending on non-durables edged up 0.3% in the quarter, largely reflecting increased spending on natural gas and other fuels.

Household spending on services increased 0.7% in the third quarter of 2009, after rising 0.4% in the previous quarter.

Residential Construction Spending Higher

Real residential construction investment spending increased 0.6%, following a 0.8% increase in the second quarter.  Spending on home-ownership transaction costs jumped 10.9%, reflecting an 8.7% surge in home resales.  Renovation activity was up 5.8%, while spending on new housing construction dropped 11.2%, the seventh consecutive quarterly decline. 

Business Investment Rebounds

Capital spending by Ontario businesses increased by a solid 7.6% in the third quarter as real machinery and equipment spending soared 11.0%, following three consecutive quarterly declines. Real non-residential construction spending decreased 4.0%, the eighth consecutive quarterly decline.    

Inventory Levels Continue To Fall

Ontario businesses continued to reduce their inventories drawing stocks down by $3.7 billion in the third quarter, following a $6.5 billion decumulation in the second quarter.  The manufacturing sector reduced stocks significantly in the quarter, with sharp inventory declines by the primary metal and refined petroleum industries.

Exports and Imports Post Gains

Real exports (+4.2%) and imports (+6.5%) both posted solid gains in the third quarter, following three consecutive quarters of decline.

International merchandise exports advanced by 8.3%, after falling 5.7% in the second quarter. Exports of automotive products, industrial goods and materials and agricultural commodities all contributed to export growth in the quarter.  

Strong gains in imports of automotive products, machinery and equipment, industrial goods and materials and consumer goods contributed to the overall rise in imports.  

Ontario’s real trade surplus dropped to $0.7 billion ($2002) from $6.5 billion in the second quarter, reflecting the relatively stronger pace of import growth.

Current Dollar GDP Increases in Third Quarter

Gross Domestic Product measured in current dollars increased by a solid 0.9% in the third quarter propelled by gains in corporate profits, interest and miscellaneous investment income and net income of unincorporated businesses.

Labour income, the largest component of household income, edged down 0.1%, reflecting modest employment growth in the quarter. Higher investment income pushed personal disposal income up slightly (+0.1%) in the quarter. The personal savings rate* slipped to 3.6% in the third quarter, down from 4.5% in the second quarter.

Corporate profits on a national accounts basis rebounded in the third quarter, increasing 7.3% following seven consecutive quarterly declines.  The third quarter rise in corporate earnings was broad-based with significant gains in both the financial and non-financial sectors.

*Note: Personal savings is calculated in the System of National Accounts as the difference between the amount households receive as income and their expenditures on taxes and personal consumption.

Prices Rise Modestly in Third Quarter

Economy-wide prices, as measured by the GDP implicit price index, increased 0.5% in the third quarter after rising 0.3% in the second quarter. 

A small rise in prices for personal consumer expenditures (+0.1%) was offset by lower prices for business investment expenditures which fell 1.0% in the quarter.  A significant decline in natural gas prices together with falling prices for motor vehicles, furniture and appliances, clothing and footwear and food and non-alcoholic beverages helped to moderate consumer price gains.

Residential construction prices increased by 1.3% in the third quarter, after no change in the second quarter. The increase was mainly driven by higher ownership transfer costs and higher prices for new homes.  Non-residential construction prices declined 0.8%. Machinery and equipment prices fell 3.3%, following a 3.0% decline in the previous quarter.   

Export (-1.7%) and import prices (-2.9%) both declined in the quarter, partially a reflection of a 6.4% appreciation of the Canadian dollar against its U.S. counterpart.  

ONTARIO PRODUCTION BY INDUSTRY

Highlights

Real output by industry advanced 0.6% following four consecutive quarterly declines.  Output increased in both the goods (+0.3%) and services (+0.7%) producing sectors.

The manufacturing (+2.3%), wholesale trade (+4.0%) and financial (+0.8%) sectors all posted solid growth in the third quarter.  Production was lower in the primary (-7.6%), utilities (-4.4%) and professional and administrative services (-1.0%) sectors.

ONTARIO OUTPUT BY INDUSTRY (% change from previous period, chained $2002)
	2007	2008	2008q4	2009q1	2009q2	2009q3
Goods Sector	-0.5	-5.2	-3.6	-7.9	-3.9	0.3
Primary Industries	-4.6	4.3	4.7	-2.6	-6.9	-7.6
Utilities	3.1	0.4	0.8	-2.4	-4.8	-4.4
Construction	5.8	-2.5	-5.5	-4.5	-2.8	-1.2
Manufacturing	-2.7	-8.0	-4.5	-10.2	-3.8	2.3
Of which: Auto Industry	-4.6	-23.9	-18.1	-27.4	3.6	16.8
Service Sector	3.3	1.5	-0.8	-0.7	0.1	0.7
Wholesale Trade	4.6	-0.9	-6.4	-5.8	2.2	4.0
Retail Trade	3.6	2.8	-1.9	0.6	0.2	1.4
Transportation and Warehousing	0.3	0.3	-2.0	-3.2	-1.5	1.2
Information and Cultural Industries	2.6	1.3	1.4	0.0	-2.7	0.1
Finance, Insurance, Real Estate and Renting	4.3	1.4	-0.1	0.0	1.2	0.8
Professional and Administrative Services	3.4	1.6	0.2	-0.5	-1.7	-1.0
Education	3.5	2.4	-0.8	-0.2	-0.1	-0.7
Health Care and Social Services	3.5	2.1	0.3	0.1	0.4	0.8
Arts, Entertainment and Recreation	1.6	0.2	-0.2	-1.0	-1.4	-1.8
Accommodation and Food	0.5	2.2	-0.5	-1.7	-1.4	0.6
Other Services	3.0	2.4	0.2	0.1	-1.1	0.1
Public Administration	1.9	3.0	0.3	0.4	0.7	0.9
Ontario Output at Basic Prices	2.3	-0.3	-1.5	-2.5	-0.9	0.6
(annualized rates)			-5.8	-9.6	-3.4	2.5

Note: Output by industry is defined as real gross domestic product (GDP) at basic prices in chained 2002 dollars.  GDP at basic prices includes taxes net of subsidies on labour and capital inputs, but excludes taxes on final products.

Manufacturing Output Higher

The manufacturing sector’s output increased 2.3% in the third quarter, the first quarterly increase since the first quarter of 2007.

Five of the eleven manufacturing industries included in the Ontario Economic Accounts increased their output in the third quarter of 2009, with the auto industry by far the leading contributor.  Excluding the auto industry, manufacturing output declined 0.4% in the third quarter.

Auto industry output surged 16.8% in the quarter, as both motor vehicle assembly and auto parts posted strong gains. The third quarter increase reflects several assembly lines resuming production following the severe market downturn over the second half of 2008. Despite the improvement, auto production is still almost 50% below levels posted at the beginning of 2007.

Output gains were also recorded in the food, beverage and tobacco (+1.6%) and plastic and rubber (+4.3%) products industries.

Production in the primary metal and fabricated metal products industry fell 1.7% in the quarter, the fourth consecutive quarterly decline.  Machinery output (-2.9%) also declined in the third quarter.

Wholesale and Retail

Wholesale trade output increased 4.0%, building on the 2.2% gain in the second quarter.  Increased activity by wholesalers of motor vehicles led the third quarter gain.

Production in the retail trade sector advanced 1.4%, the third consecutive quarterly increase.  New car dealers and pharmacies and personal care stores led the overall growth in the retailing industry.

Construction, Resources and Utilities

Construction sector output decreased 1.2%, falling for the seventh consecutive quarter.  Both residential (-2.2%) and non-residential (-2.8%) construction were down over the quarter while engineering output advanced 0.7%.

Mining output dropped 11.0% as continuing labour disputes in the nickel mining industry hampered production in the quarter.

Utilities output decreased 4.4%, with both natural gas and water distribution (-4.2%) and electric power (-4.4%) production dropping in the quarter.

Output of agriculture and forestry dropped 6.0%, the third consecutive quarterly decline.

Note: Construction industry output is measured by the value added of the industry. This is a different statistical measure than the construction investment spending estimates included as part of expenditure-based Gross Domestic Product.

Health Care, Education and Public Administration

Production in the health care and social services sector advanced by 0.8%, the strongest quarterly gain in almost two years. 

Education services output slipped 0.7% as net employment declined by 3,100 in the quarter.

Public administration output rose 0.9%, following a 0.7% gain in the second quarter.

Finance, Insurance, Real Estate and Leasing*

Output by the finance, insurance, real estate and leasing sector rose 0.8% in the third quarter, decelerating slightly from a 1.2% second quarter increase.

The continued gains in sales of existing homes supported higher activity in other financial services (+2.5%), which includes activities of real estate agents and brokers. Bank sector output (+1.2%) also increased in the quarter while value added by insurance carriers declined 2.6%.

*This sector (NAICS 5A) includes the finance, insurance, real estate and renting and leasing and management industries.

Other Service Sector Industries

Accommodation and food services output increased 0.6%, the first quarterly increase in five quarters.

In the information and culture sector (which includes telecommunications), production edged up 0.1% after falling 2.7% in the second quarter.

Output of professional and administrative services decreased for the third consecutive quarter, falling 1.0%.

LIST OF TABLES

Income and Expenditure Data

Quarterly Data, 2006:1-2009:3

Table 1: Ontario Gross Domestic Product (Income-Based)
Table 2: Ontario Gross Domestic Product (Expenditure-Based)
Table 3: Ontario Gross Domestic Product at Chained 2002 Prices
Table 4: Sources and Disposition of Ontario Personal Income
Table 5: Ontario Trade
Table 6: Ontario Deflators

Annual Data, 2005-2008

Table 7: Ontario Gross Domestic Product (Income-Based)
Table 8: Ontario Gross Domestic Product (Expenditure-Based)
Table 9: Ontario Gross Domestic Product at Chained 2002 Prices
Table 10: Sources and Disposition of Ontario Personal Income
Table 11: Ontario Trade
Table 12: Ontario Deflators

Ontario Production by Industry at 2002 Prices

Table 13: Quarterly Data, 2006:1-2009:3
Table 14: Annual Data, 2005-2008

Historical tables, both annual and quarterly available from 1981.
DOWNLOAD EXCEL FORMAT

Any questions or comments on the Ontario Economic Accounts can be directed by email to: macroeconomics.fin@ontario.ca.

Analytical Tables and Charts 1995:1-2009:3