FOURTH QUARTER 2007 HIGHLIGHTS

• Ontario’s real Gross Domestic Product grew by 0.1% (0.4% annualized) in the fourth (October to December) quarter of 2007.  The Canadian economy grew by 0.2% (0.8% annualized), while the U.S. economy advanced 0.1% (0.6% annualized) in the quarter.
• The fourth quarter increase reflected strong positive contributions from consumer and business investment spending.  Final domestic demand grew 2.1% in real terms, the fastest quarterly growth of the year.  Imports outpaced exports, slowing growth.
• The largest source of fourth quarter growth was real consumer spending which jumped 2.4%.  Consumer demand was solid in all categories, with particular strength in expenditures on big-ticket durable goods such as autos and furniture.
• Real residential construction investment grew 1.6% in the fourth quarter, after advancing 2.1% in the third quarter.  This was the fifth consecutive quarterly increase in Ontario’s housing sector, with solid gains coming from new housing construction and renovation spending.
• Capital spending by the business sector continued to be a significant source of growth for the economy.  Real non-residential construction spending advanced 3.3% in the fourth quarter, reflecting strong engineering-based capital spending by Ontario’s utilities and transportation sectors.  Real machinery and equipment investment spending grew 0.5% in the final quarter of 2007, following healthy gains in both the third (+2.7%) and second (+1.2%) quarters.
• Ontario pre-tax corporate profits grew at a 0.7% pace in the fourth quarter.  Strong earnings in retail and wholesale trade were offset by lower profits in Ontario’s manufacturing sector.
• Ontario businesses added $9.6 billion ($2002) to real inventories in the fourth quarter, following an $8.8 billion (annualized) build-up in the third quarter.  Retailers and wholesalers accounted for most of the inventory accumulation.
• Real exports fell 0.6% in the final quarter of 2007 due to slower U.S. economic growth and the strong Canadian dollar.
• Spurred on by healthy growth in domestic demand, real imports grew at a strong 2.4% pace in the fourth quarter.
• In current dollars, GDP grew by 1.4% in the fourth quarter, led by strong growth in labour income (+1.4%).  Economy-wide prices, as measured by the GDP implicit price index, rose 1.3%.
• On an industry basis, economic production advanced 0.1% in the fourth quarter of 2007, following 0.4% growth in the third quarter.  The construction sector led growth (+2.3%), while manufacturing output decreased by 2.0%.

2007 OVERVIEW

• Ontario’s real GDP grew by 2.3% in 2007, following increases of 2.1% in 2006 and 2.9% in 2005.  The Canadian economy grew at a 2.7% pace while the U.S. economy advanced 2.2% in 2007.
• Real final domestic demand - the sum of consumer spending, business investment and government spending - remained strong in 2007, rising 4.2%, following a similar gain of 4.1% in 2006.  Consumer spending was a major contributor to economic growth in 2007, with real personal expenditures rising 4.2%, the largest annual gain in seven years.
• In current dollars, GDP grew 5.4% in 2007, the economy’s strongest nominal growth in seven years.  Economy-wide prices, as measured by the GDP price deflator, rose 3.1% in 2007, up from a 1.7% increase in 2006.  Machinery and equipment (-2.9%) and consumer prices (+1.5%) were both restrained by the rising dollar in 2007.
• Real economic production by industry grew 2.2% in 2007. Gains in construction (6.7%), retail trade (+5.1%) and finance (+3.9%) were partially offset by a 2.2% decline in manufacturing.

ONTARIO ECONOMIC ACCOUNTS: HIGHLIGHTS
(% change from previous period)
	2006	2007	2007q1	2007q2	2007q3	2007q4
Real GDP (Chained $ 2002)	2.1	2.3	0.8	0.7	0.5	0.1
(annualized rate)			3.2	2.7	2.1	0.4
Personal spending	3.5	4.2	0.3	1.0	1.2	2.4
Government spending	3.7	2.8	0.5	0.5	1.2	1.6
Residential construction	1.1	2.3	0.7	0.3	2.1	1.6
Non-residential construction	10.4	13.9	1.7	5.6	4.7	3.3
Machinery & equipment	11.2	5.7	-1.7	1.2	2.7	0.5
Final Domestic Demand	4.1	4.2	0.3	1.0	1.5	2.1
Exports	-0.2	0.8	1.1	-1.1	-0.3	-0.6
Imports	2.7	4.3	0.3	-0.1	2.6	2.4
Business inventories (Chained $2002 billions)	3.3	6.3	2.6	4.3	8.8	9.6
Nominal GDP ($ Current)	3.9	5.4	1.7	1.8	0.8	1.4
Corporation profits	3.2	8.6	0.3	-0.2	2.7	0.7
Personal income	4.8	5.3	1.7	1.2	0.9	1.1
Personal disposable income	5.2	4.6	1.5	0.2	1.5	1.3
Implicit price index, GDP	1.7	3.1	0.9	1.2	0.3	1.3

DEMAND AND INCOMES

Consumer Spending Up Strongly

Real consumer spending jumped 2.4% in the fourth quarter of 2007, its strongest quarterly gain in 23 years.  Consumer demand was solid in all categories, with spending on big-ticket durable goods such as autos and furniture especially robust.

Real expenditures on durables advanced at a brisk pace, increasing 5.3% in the fourth quarter. A 7.8 % jump in motor vehicle purchases was a major contributor to the gain.

Consumer spending on semi-durable goods rebounded by a healthy 4.1% in the fourth quarter.  Spending on clothing and footwear, accounting for over half of total semi-durable spending, advanced at a brisk 5.1% pace.

Consumer spending was also supported by a 1.9% rise in non-durable purchases along with solid growth in consumer service spending, which increased by 1.8% in the fourth quarter of 2007. 

Labour income, the largest component of household income, increased by 1.4% in the final quarter of 2007.  This resulted in personal disposable incomes growing at a healthy 1.3% pace.

In annual terms, consumer spending was the leading contributor to real GDP growth in 2007, advancing 4.2%, its best performance since 2000.  Consumer spending was strong in all major categories but was particularly robust for durable goods spending (+6.5%) and services (+4.5%).  Strong motor vehicle (+4.8%) and furniture (+7.6%) purchases propelled durable spending growth, while rising travel spending, benefiting from the strong Canadian dollar, was a major contributor to the strong growth in consumer services in 2007.  Spending on semi-durables (+3.5%) and non-durables (+2.6%) were also important contributors to the overall strong performance of the household sector in 2007.

A 5.3% jump in personal income in 2007, the largest increase since 2000, helped support increased household spending.  Labour income increased 5.0%, reflecting a 1.6% (101,100 jobs) employment gain and a 3.0% increase in average hourly wages.

Ontario’s personal savings* rate fell to 1.1% in 2007, as consumer spending in current dollars (+5.8%) outpaced personal disposable income growth (+4.6%).

Residential Construction Continues To Grow in Fourth Quarter

Real residential construction investment grew 1.6% in the fourth quarter.  Solid gains in new housing construction and renovations supported the overall increase in housing investment.

On an annual basis, real residential construction investment increased 2.3% in 2007, up from 1.1% in 2006.  While growth has slowed in recent years, 2007 marked the ninth straight annual increase in investment spending on residential housing.  Over the last nine years, residential construction expenditures in constant 2002 dollars have grown by over 60%, hitting a record $31.6 billion in 2007.

The major factor driving up the value of residential construction spending has been the demand for home improvements by Ontarians.  Renovation spending, which jumped 5.8% in 2007, has been growing at an average annual rate of 8.9% per year since 1998, accounting for almost 75% of the total residential investment gain over the past nine years.

Business Investment Spending Remains Strong

Capital spending by the business sector continued to be a significant source of growth for the economy throughout 2007. Real non-residential construction spending increased at a 3.3% pace in the fourth quarter.  This increase reflects strong growth in engineering-based capital spending by Ontario’s utilities and transportation sectors.

Real machinery and equipment investment spending grew 0.5% in the fourth quarter, led by rising purchases of new industrial machinery and telecommunications equipment.

Ontario pre-tax corporate profits grew at a 0.7% pace in the fourth quarter.  The modest increase reflects strong earnings in the retail and wholesale trade industries offset by lower profits in the manufacturing sector.

On an annual basis, business investment in non-residential structures increased for the third straight year, growing 13.9% in 2007.  This was the fastest pace of growth since 1996, propelled in large part by investments in several major engineering projects in the electrical utilities sector.

Business investment was also boosted by solid growth in real machinery and equipment, which increased 5.7% in 2007, rising for the fifth consecutive year.  Investment spending was concentrated in purchases of computers and other office equipment, software, telecommunications equipment, and industrial machinery.

Ontario pre-tax corporate profits grew 8.6% in 2007, the strongest performance since 2004.  The solid profit performance in 2007 reflects stronger earnings in several key sectors, including wholesaling, retailing and financial services.

Inventory Build-Up Continues in Fourth Quarter

Ontario businesses added $9.6 billion (annualized, $2002) to real inventories in the fourth quarter, following an $8.8 billion build-up in the third quarter.  Retailers and wholesalers accounted for most of the accumulation in the fourth quarter.

In 2007, businesses raised inventories by $6.3 billion ($2002).  Increased inventories of motor vehicles by both the retail and wholesale trade sectors, along with a significant accumulation of wholesale machinery and equipment stocks, dominated the overall inventory gains last year.

 

Trade Balance Deteriorates in Fourth Quarter

Real exports (which include both international and interprovincial exports) fell by 0.6% in the final quarter of 2007.  The decline was due to slowing U.S. economic growth and the strong Canadian dollar.  A 1.8% decline in international goods exports in the fourth quarter was broadly-based with the significant declines in the forestry, industrial goods and materials and automotive sectors.  Exports of machinery and equipment were unchanged in the fourth quarter.

Spurred by healthy growth in domestic demand and the strong Canadian dollar, real imports grew at a strong 2.4% pace in the fourth quarter.  In addition to strong consumer spending, imports were propelled by a substantial accumulation of inventories as wholesalers and retailers took advantage of the strong Canadian dollar to stock up on merchandise in the second half of 2007.  The strong import performance was led by gains in imports of machinery and equipment, industrial goods and materials and consumer goods.

On an annual basis, Ontario real exports grew by 0.8% in 2007, rebounding from a 0.2% decline in 2006.  The modest improvement occurred despite the competitive challenges of the strong Canadian dollar which appreciated a further 5.6% against its U.S. counterpart in 2007.  Export growth was also hindered by slumping U.S. demand for automotive products and forestry products in 2007.  Exports to other provinces and territories continued to grow in 2007, partially offsetting the weakness in Ontario’s international trade.

Ontario’s real imports grew at a strong 4.3% pace in 2007, bolstered by the strong dollar and growing domestic demand.  This was the sixth consecutive annual increase in real imports.  Import gains were widespread in 2007 with all major categories recording strong increases.  Substantial increases occurred in machinery and equipment, automotive products and consumer goods such as household furnishings, clothing and consumer electronics.

GDP Inflation Rises in Fourth Quarter

Economy‑wide prices, as measured by the GDP implicit price index, rose 1.3% in the fourth quarter, up from a 0.3% third quarter increase.  Supporting the fourth quarter price increase was a jump in non-durable consumer expenditure prices (+1.3%), due in part to higher prices for gasoline.  Upward pressure was also exerted by Ontario’s construction prices, with residential construction prices rising 1.3% and non-residential construction prices up 0.8% in the fourth quarter.

Import prices which have fallen in nine of the last ten quarters, decreased 3.4% in the final quarter of 2007.  The continuing appreciation of the Canadian dollar, which rose 6.4% against its U.S. counterpart in the final quarter of 2007, has been the cause of falling prices.  The strong currency also had a moderating impact on prices received by Ontario exporters.  Export prices were 1.6% lower in the fourth quarter.

Lower import prices have helped dampen Ontario’s domestic demand prices allowing consumers and businesses to purchase foreign-made goods and services at lower prices.  The implicit price for final domestic demand expenditures increased by 0.3% in the final quarter of 2007.  Consumer prices rose a modest 0.3%, while machinery and equipment prices fell 2.4% in the fourth quarter.

For 2007 as a whole, prices as measured by the GDP price deflator, rose 3.1%, up from a 1.7% increase in 2006.  Price increases were strongest in Ontario’s construction sector with price gains in excess of 3.0%.  The rising Canadian dollar, which appreciated 5.6% against the U.S. dollar in 2007, helped moderate annual inflation.  Consumer prices rose 1.5% in 2007, in line with the average price increase of 1.5% over the past four years.  Machinery and equipment prices fell by 2.9%, exerting the biggest downward influence on the overall GDP price index.

ONTARIO PRODUCTION BY INDUSTRY

Fourth Quarter 2007 Highlights

Output by industry grew 0.1% in the fourth quarter of 2007.  Service-sector output advanced 0.5%, while activity in the goods-producing sector declined 0.9%.  The construction (+2.3%), utilities (+2.3%), education (+1.7%), wholesale trade (+1.6%) and retail trade (+0.9%) sectors all posted strong growth in the fourth quarter.  Manufacturing output was down 2.0%.

On an annual basis, output by industry grew 2.2% in 2007.  Gains in construction (+6.7%), retail trade (+5.1%), finance (+3.9%) and professional and administrative services (+3.3%) were partially offset by a 2.2% decline in manufacturing.

ONTARIO OUTPUT BY INDUSTRY
(% change from previous period, chained $2002)
	2006	2007	2007q1	2007q2	2007q3	2007q4
Goods Sector	-1.8	0.0	1.6	-0.3	0.2	-0.9
Primary Industries	-0.3	-1.4	-0.6	-1.4	-1.9	-3.1
Utilities	-2.7	0.8	0.3	2.9	0.1	2.3
Construction	5.6	6.7	3.3	1.3	3.7	2.3
Manufacturing	-3.9	-2.2	1.4	-1.0	-0.8	-2.0
Of which: Auto Industry	-3.9	-2.7	2.9	-5.3	2.2	-5.9
Service Sector	4.0	3.4	0.5	0.9	0.5	0.5
Wholesale Trade	7.0	2.9	0.9	1.6	1.3	1.6
Retail Trade	4.2	5.1	0.4	1.5	0.2	0.9
Transportation and Warehousing	1.9	0.3	-0.2	0.3	1.1	-0.7
Information and Cultural Industries	3.1	2.5	-0.9	0.2	0.3	0.8
Finance, Insurance, Real Estate	4.1	3.9	0.8	1.0	0.4	0.1
Public Administration	4.0	1.9	0.1	0.9	0.8	0.5
Ontario Output at Basic Prices	2.3	2.2	0.8	0.5	0.4	0.1
(annualized rates)			3.4	2.1	1.6	0.4

Manufacturing Output Declines

The manufacturing sector’s output dropped 2.0% in the fourth quarter.  Nine of eleven manufacturing industries, representing 77% of the sector’s production, reduced their output in the fourth quarter.

A drop in transportation equipment production
 (-5.2%) accounted for almost three quarters of the overall quarterly manufacturing decline.  This decline was attributable to a significant decrease in auto production
(-5.9%), reflecting continued restructuring within the industry.

Output of plastic and rubber products (-4.4%) and wood and furniture products (-3.8%) also posted significant declines.  Primary metal and fabricated products (+2.0%) and chemical and petroleum products (+0.4%) were the only manufacturing industries to increase output in the quarter. 

For 2007 as a whole, manufacturing sector output fell by 2.2%.  Auto production was down 2.7%.  Other industries including chemical and petroleum products (-6.2%), paper and printing (-5.4%) and wood and furniture products (-5.8%) also posted declines.  The electrical and electronic products sector recorded strong growth in 2007 (+8.6%), building on a 3.0% gain in 2006.

Wholesale and Retail

Wholesale output grew by 1.6%, marking the fourth consecutive quarter with positive growth. Increased activity across several trade groups such as food products, machinery and equipment and building supplies supported growth.  The wholesale trade sector’s advance represented the largest positive contribution to economy-wide growth by any sector in the fourth quarter.

Retail sector output increased 0.9% in the fourth quarter, led by strong growth in food and beverage stores, gasoline stations and new and used car dealers.

In annual terms, wholesale trade rose 2.9% in 2007, while retail trade output increased 5.1%.

Resources, Utilities and Construction

Construction sector output advanced 2.3%, with growth in both residential (+2.7%) and non-residential (+2.2%) construction.  Utilities output increased 2.3%, fueled by growth in the natural gas and water industry (+4.4%). 
 
Mining output fell 1.6%, following a 2.1% increase in the third quarter.

In 2007, construction sector output rose 6.7%, driven mainly by strong growth in engineering construction (+13.2%).  Mining also grew in 2007 (+1.4%), while utilities output rose 0.8%.

Education, Health Care and Public Administration

Education services output grew 1.7% in the fourth quarter.  Production in the health care and social services sector grew 0.6%, up for an eleventh consecutive quarter.  Public administration output increased 0.5%.

For 2007 as a whole, education services output rose 2.2%, matching its 2006 pace.  Output by the health care and social services sector grew 3.2%.

Finance, Insurance and Real Estate

Real output of the finance, insurance and real estate sector grew 0.1% in the fourth quarter with a decline in other financial services (-1.8%) holding back overall growth for the sector. The decrease in other financial services reflected lower stock market activity and home resales.

In annual terms, the financial sector’s output grew 3.9% in 2007, reflecting strong gains in banking (+6.6%) and other financial services (+6.0%).

Other Service Sectors

Output in the information and culture sector (which includes telecommunications) rose 0.8% in the fourth quarter.

Accommodation and food services output rose by 0.6%. Transportation and warehousing declined 0.7%, influenced by the weakness in the manufacturing sector.

Annually, professional and administrative services output rose 3.3% in 2007, maintaining its trend in strong positive annual growth.  Activity in the arts, entertainment and recreation sector also advanced (+4.4%).

Ontario Economic Accounts: Summary Charts
(2002:1 - 2007:4)

LIST OF TABLES

Income and Expenditure Data

Quarterly Data, 2004:1-2007:4

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, 2004-2007

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, 2004:1-2007:4
Table 14: Annual Data, 2004-2007

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