Sunday, January 31, 2016

Ontario Third Quarter GDP Grows 0.9% or 3.5% Annualized, Underlying Numbers Weak

I hadn't got around to writing about the Ontario third quarter GDP growth number which at 3.6% was a very good number for today's Ontario. Though to be fair that is a single quarter. On the Ontario Finance Ministry third quarter economic accounts page, the second quarter number is now listed at 1.7% annualized, up 1.4% from when the second quarter numbers were released.

Curiously, when the second quarter numbers were released by the ministry, the first quarter number was revised up to 0% versus the chart now released for the third quarter that shows the first quarter growth as now being slightly positive (eyeballing it, I would say 0.7% annualized). The Ontario 2015-2016 budget predicted 2.7% GDP growth which could be possible with a decent fourth quarter, but I'm betting the third is a bit of an anomaly.

From the US BEA results for US GDP released on January 29, "In the third quarter, real GDP increased 2.0 percent". Statscan reported third quarter growth of 2.3%, so Ontario had significantly better performance for both.

From the economic accounts page, "Exports advanced 3.0%, the strongest quarterly gain since 2013.  Imports edged down 0.1% in the quarter." I'm wondering how that compares in terms of items and individual services versus the dollar values.

More negative is that "Capital spending on machinery and equipment decreased 0.6%, the third consecutive quarterly decline" which certainly isn't good for future productivity growth.

Inventory numbers were also negative "Non-farm inventory accumulation slowed as businesses added $1.4 billion ($2007) worth of goods to inventories, down from $5.5 billion in the second quarter.  The third quarter inventory buildup occurred in the manufacturing and retail sectors, while wholesale inventories declined" Those inventories have to be unwound some time, so when it happens, it would be pretty.

Obviously the 3.5% number for the third quarter was impressive, although digging down, one wonders if it was really just currency effects. Significant future productivity growth certainly doesn't seem like it is going to happen.

What about the fourth quarter? In the BEA January 29th first release of 2015 fourth quarter GDP for the U.S., the annualized GDP number was 0.7% annualized, which obviously isn't good and is below population growth so GDP would have declined on a per capita basis. So for Ontario, which depends on the U.S as its main export market, that's not a good sign for the fourth quarter number. I would say the numbers for the first quarter of 2016 aren't likely to be strong either, but things could change in the last two months of the quarter.

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