Ontario Economic Accounts - Second Quarter of 2009

SECOND QUARTER 2009 SUMMARY

• Ontario’s real Gross Domestic Product (GDP) declined 1.0% in the second quarter of 2009, following a revised 2.1% contraction in the first quarter.  Canadian real GDP fell 0.9% in the second quarter while the U.S. economy contracted 0.2%.
• The second quarter decline reflected continued weakness in net exports and business investment.  These declines were partially offset by higher consumer and government spending.
• Consumer spending increased 0.5% in the second quarter, following no change in the first quarter.  Consumers increased their purchases of autos, clothing and footwear, food and natural gas in the second quarter.
• Investment in residential construction fell 0.5%, a reflection of a drop in new housing construction (-8.4%) and renovation activities (-7.3%), that more than offset the strong jump in spending on ownership transaction costs (+40.4%).
• Business investment on plant and equipment declined in the second quarter as machinery and equipment investment spending fell 3.2% while non-residential construction spending declined 5.1%.
• Businesses also reduced their inventory stocks, cutting inventories by $5.9 billion ($2002) in the second quarter, following a $7.3 billion reduction in the first quarter. 
• Ontario’s trade surplus dropped as exports fell 3.1% while imports remained flat in the second quarter.
• In current dollars, GDP decreased 0.7% in the second quarter, after contracting 2.1% in the first quarter.  Economy-wide prices, as measured by the GDP implicit price index, increased 0.3% in the second quarter.   
• On an industry basis, economic production contracted 0.9% in the second quarter of 2009.  Production of goods-producing industries dropped 4.0%, while services-producing industries posted a gain of 0.1% in the quarter.

ONTARIO ECONOMIC ACCOUNTS: HIGHLIGHTS
(% change from previous period)
	2007	2008	2008q3	2008q4	2009q1	2009q2
Real GDP (Chained $ 2002)	2.1	-0.5	-0.1	-1.5	-2.1	-1.0
(annualized rate)			-0.6	-5.9	-8.2	-4.0
Personal spending	3.9	2.7	-0.1	-1.0	0.0	0.5
Government spending	2.3	3.2	-0.1	-1.2	-0.3	1.1
Residential construction	1.9	-2.2	-2.8	-8.2	-3.9	-0.5
Non-residential construction	18.1	-9.7	-7.0	-6.9	-7.2	-5.1
Machinery & equipment	5.0	0.6	1.3	-8.0	-11.6	-3.2
Final Domestic Demand	3.9	1.9	-0.4	-2.3	-1.3	-0.2
Exports	0.5	-5.5	1.5	-6.2	-10.9	-3.1
Imports	3.3	-2.2	0.7	-9.1	-12.0	0.0
Business inventories (Chained $2002 billions)	4.8	4.0	5.1	0.9	-7.3	-5.9
Nominal GDP ($ Current)	4.5	0.5	-0.3	-2.4	-2.1	-0.7
Corporation profits	0.3	-14.2	-1.7	-27.3	-21	-11.0
Personal income	5.0	3.8	0.2	0.2	-0.9	-0.4
Personal disposable income	4.2	5.0	0.5	0.2	-0.8	0.0
Implicit price index, GDP	2.4	1.0	-0.2	-0.9	0.0	0.3

EXPENDITURE AND INCOME DETAILS

Consumer Spending Posts Gain

Buoyed by strengthening consumer confidence and lower prices, real consumer spending increased 0.5% in the second quarter, posting its first gain in a year.  

Real spending on durable goods increased 1.8% in the quarter, after falling by an average of 2.3% in the previous two quarters.  Motor vehicle and parts purchases jumped 3.7%, leading the overall increase in durable spending.  Spending on furniture and appliances fell 1.0%, following a 3.3% drop in the first quarter.

Spending on non-durables advanced 0.6% in the second quarter marking the second consecutive quarterly increase.  The second-quarter gain largely reflected increased spending on food and natural gas.

Household spending on services increased 0.3% in the second quarter of 2009, after falling in the previous two quarters.

Residential Construction Spending Continues To Soften

Real residential construction investment spending declined 0.5% in the second quarter, the fourth consecutive quarterly decline.  Spending on new housing construction fell 8.4%, reflecting a 21.7% decline in housing starts in the quarter.  Renovation activity was down 7.3%.  Spending on ownership transaction costs jumped 40.4%, sparked by a strong surge in home resales.  This helped to offset some of the overall decline. 

Business Investment Lower

Capital spending by Ontario businesses decreased in the second quarter with real machinery and equipment spending falling 3.2%, following an 11.6% decline in the previous quarter. Lower prices for capital goods helped moderate the pace of decline in capital spending in the second quarter.  Real non-residential construction spending decreased 5.1%, the sixth consecutive quarterly decline.    

Inventory Levels Reduced In Second Quarter

Ontario businesses continued to reduce their inventory stocks drawing down $5.9 billion in the second quarter following a $7.3 billion decumulation in the first quarter.  Ontario’s manufacturing, wholesale and retail sectors all reduced stocks significantly in the quarter.  In particular, motor vehicle dealers reduced unsold stocks by cutting prices and offering customers other sales incentives.

Trade Surplus Declines in Second Quarter

Ontario’s real trade surplus dropped sharply in the second quarter to $3.3 billion, as real exports fell 3.1% while real imports (0.0%) were unchanged.  Weaker trade with the United States was a significant contributor to the overall decline in exports.  Ontario’s international merchandise exports declined 6.3%, with significant declines in machinery and equipment, industrial goods and materials, and forestry exports. Exports of automotive products remained essentially unchanged in the second quarter, after dropping over the previous five quarters.

Real imports were unchanged in the second quarter after falling in the previous two quarters.  Solid gains in imports of automotive products, machinery and equipment and other consumer goods were offset by lower imports of energy products and industrial goods and materials.

Current Dollar GDP Lower in Second Quarter

Gross Domestic Product measured in current dollars contracted 0.7% in the second quarter, reflecting declines in labour income and corporate profits.

Labour income, the largest component of household income, declined 1.1%, reflecting a 0.9% decline in employment during the quarter.  Falling labour income, coupled with declines in investment income, pulled personal income down 0.4%.  However, personal disposable income was unchanged (0.0%) as personal direct taxes fell 2.2% in the quarter.  The personal savings rate* slipped to 3.6% in the second quarter, down from 4.0% in the first quarter.

Corporate profits on a national accounts basis decreased 11.0% in the second quarter, following a drop of 21.0% in the previous quarter.  The decline in corporate earnings was broad-based with significant declines 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.  It does not include changes in household wealth, such as financial assets, home equity or retirement savings.

Prices Edge Up in the Second Quarter

Economy-wide prices, as measured by the GDP implicit price index, edged up 0.3% in the second quarter after posting no change in the first quarter. The second quarter rise in overall prices is the first increase since the beginning of 2008.  On year-to-year basis, the second quarter price level was 0.7% lower than a year earlier.

The implicit price index for final domestic demand was unchanged in the second quarter, largely a reflection of prices for personal expenditures which were also unchanged in the quarter.  A significant downward movement in natural gas prices together with continuing declines in motor vehicle prices helped to moderate second quarter consumer prices.

Residential construction prices increased by 1.0%, largely a reflection of higher prices for sales of existing homes.  Non-residential construction prices edged down 0.3%. 

Export (-2.7%) and import prices (-3.5%) declined in the second quarter, partially a reflection of a 6.7% appreciation of the Canadian dollar against the U.S. dollar.  The appreciation of the Canadian dollar helped lower the price of machinery and equipment investment by 3.2% in the quarter.

ONTARIO PRODUCTION BY INDUSTRY

Highlights

Real output by industry declined 0.9% in the second quarter, the third consecutive quarterly decline.  Service sector activity edged up 0.1%, while output by the goods-producing sector fell 4.0%.

The manufacturing (-4.0%), construction (-3.7%) and professional and administrative services (-1.7%) sectors experienced the largest declines. The financial (+1.2%) and wholesale trade (+1.8%) sectors posted relatively strong gains in the second quarter.

ONTARIO OUTPUT BY INDUSTRY (% change from previous period, chained $2002)
	2007	2008	2008q3	2008q4	2009q1	2009q2
Goods Sector	-0.8	-4.3	-0.8	-3.4	-7.4	-4.0
Primary Industries	-5.5	2.9	3.7	4.8	-0.7	-5.0
Utilities	2.8	0.7	-1.9	0.5	-3.2	-3.6
Construction	4.0	-2.0	-2.7	-4.4	-4.4	-3.7
Manufacturing	-2.1	-7.4	-1.0	-4.9	-9.5	-4.0
Of which: Auto Industry	-4.7	-22.9	-5.5	-17.2	-27.5	0.7
Service Sector	3.1	1.7	0.3	-0.7	-0.6	0.1
Wholesale Trade	4.3	-1.2	-1.7	-6.4	-6.0	1.8
Retail Trade	3.8	2.5	0.1	-2.2	0.5	0.3
Transportation and Warehousing	0.5	-0.5	0.7	-2.2	-2.7	-1.2
Information and Cultural Industries	2.3	1.4	1.6	1.4	-0.1	-2.5
Finance, Insurance, Real Estate	4.0	1.9	1.0	0.3	0.2	1.2
Public Administration	2.0	2.5	0.3	0.1	0.7	0.8
Ontario Output at Basic Prices	2.2	-0.2	0.1	-1.3	-2.3	-0.9
(annualized rates)			0.5	-5.0	-9.0	-3.4

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 Lower

The manufacturing sector’s output fell 4.0% in the second quarter, less pronounced than the 9.5% plunge in the first quarter. This marked the ninth consecutive quarterly decline for the sector. Nine of the eleven manufacturing industries included in the Ontario Economic Accounts reduced their output in the second quarter of 2009.

Output of the primary metals and fabricated metal products industry fell 14.1% in the second quarter, following two consecutive quarters of significant declines (2008Q4: -10.7%; 2009Q1: -7.9%). Plant shutdowns, lower prices and weak market demand have all contributed to the decline in output by this industry.

Auto production increased 0.7% in the second quarter, after dropping 40% over the previous six months when the severe market downturn resulted in extended closures and slowdowns at numerous plants.

There were also significant output reductions in the other manufacturing* (-6.4%), wood products and furniture (-7.5%) and paper products and printing (-4.4%) industries.   

Electrical and electronic products output increased 1.2% in the quarter, following a 6.1% drop in the first quarter. Chemical and petroleum products also rebounded, posting a 0.8% gain in the quarter following a 7.9% drop in the first quarter.

*Other manufacturing includes the non-metallic mineral product and miscellaneous manufacturing industries.

Wholesale and Retail

Wholesale trade output increased 1.8%, following a 6.0% drop in the first quarter.  Increased activity was recorded across a majority of trade groups, with solid gains recorded by wholesalers of motor vehicles, pharmaceuticals and computers.

Retail trade activity advanced 0.3%, decelerating slightly from the 0.5% gain in the first quarter.  New car dealers led the overall growth in the retailing industry.

Resources, Utilities and Construction

Mining output dropped 7.9% as a shutdown in the nickel mining industry hampered production in the quarter.

Output in the agriculture and forestry sector declined 3.7%.

Utilities output decreased 3.6%, with an increase in natural gas and water distribution production (+0.7%) not enough to compensate for a decline in electric power output
(-5.0%).

Construction sector output decreased 3.7%, the sixth consecutive quarterly decline.  Both residential construction (-7.7%) and engineering activity (-2.6%) were down over the quarter while non-residential construction output advanced 2.0%.

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 a steady 0.5%, building on the 0.1% increase in the first quarter.  Education services output rose 0.2% while public administration output rose 0.8%.

Finance, Insurance and Real Estate

Output by the finance, insurance and real estate sector rose 1.2% in the second quarter, accelerating from a 0.2% first quarter increase. 

The increase in sales of existing homes fuelled output growth in other financial services (+5.1%), which includes activities of real estate agents and brokers. Insurance (+1.3%) and banking activities (+0.9%) also increased in the quarter.   

 

Other Service Sector Industries

Output of professional and administrative services decreased 1.7% in the second quarter, as net employment declined by more than 13,000. 

Accommodation and food services output dropped 1.9%, as the number of international travelers to Ontario declined.

In the information and culture sector (which includes telecommunications), production dropped 2.5%. 

LIST OF TABLES

Income and Expenditure Data

Quarterly Data, 2006:1-2009:2

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, 2006:1-2009:2
Table 14: Annual Data, 2005-2008

Historical tables, both annual and quarterly, from 1981 are available on request by e-mailing macroeconomics.fin@ontario.ca.

Historical Tables and Charts 1995:1-2009:2