WHAT WENT UP
Cheap gasoline and low interest rates appear to have put consumers in a good mood despite the slowing economy. Canadians spent 0.6 per cent more on themselves in the second quarter. At the top of most shopping lists were a new ride, a night out and more insurance and mutual funds. Purchases of vehicles jumped, while outlays on restaurants and financial services also swelled.
Canada's housing market blew both hot and cold during the quarter, but still managed to make a tiny positive contribution to growth. Business investment in residential structures eked out a 0.3-per-cent gain as a decline in new home construction was offset by gains in renovation spending and resales of existing homes.
A big increase in shipments of tires, engines and other vehicle components helped turn around two quarters of declining exports for Canada. But don't declare a renaissance just yet: Even with the big boost from auto parts, and solid gains in crude oil shipments, exports of goods and services ticked up only 0.1 per cent.
One unwelcome growth area is the amount that Canadians are paying to support their borrowing. The household debt service ratio, which is the amount of take-home pay needed to keep up with mortgage and other debt payments, edged up by 0.17 percentage points to 14.07 per cent in the second quarter, as low rates encouraged consumers to take on even more debt.
WHAT WENT DOWN
Mining, oil and gas
Canada's traditional strength in natural resources has turned into an albatross as commodity prices tumble. The mining, quarrying, and oil and gas extraction sector contracted 4.5 per cent in the second quarter. Among the hardest hit areas were oil sands companies and support firms, which had to grapple with crude prices that have been cut in half over the past year.
The slowdown in energy and mining has prompted many companies to snap their wallets shut. Investment in machinery and equipment by businesses tumbled 4.6 per cent in the second quarter, while investment in factories, mines and other non-residential structures slid 2.3 per cent. There simply isn't much reason to invest in new capacity at a time when commodity prices are hitting multiyear lows.
Imports of goods and services continued their swoon, falling 0.4 per cent. Companies in particular are cutting back on imports as a weaker loonie makes foreign goods more expensive. Industrial machinery imports slid 6.6 per cent, while imports of electrical equipment also tumbled. On a more positive note, imports of auto vehicles and parts surged.
Household savings rate
Canadians saved less during the second quarter. The household savings rate fell to 4 per cent of disposable income, down from 5.2 per cent in the first quarter, a 1.2-percentage-point drop. Blame that decline, in part, on Canadians' appetite for new vehicles and other consumer goods. But note that a 4-per-cent saving rate is actually higher than the level during most of 2014, suggesting that Canadians aren't yet turning into a nation of free spenders.
However, there may be a silver lining. Some sectors saw improvements in June, which was the strongest monthly growth since May, 2014
Manufacturing output grew 0.4 per cent
Non-durable goods manufacturing grew nearly 1 per cent in June – that's export-friendly products such as chemicals, food, textiles and clothing. "We are finally seeing the effects of the low Canadian dollar," said Brian DePratto, economist at TD. Along with favourable interest rates and a strong outlook for the U.S. economy, "the fundamentals are good to support manufacturing."
Arts and entertainment sector increased 6.4 per cent
This increase can be mostly attributed to spending related to the FIFA Women's World Cup, hosted in June and played across six major Canadian cities. While it's likely a one-time increase due to the special event, economists expect at least one more similar bump – from the PanAm Games in Toronto.
Finance and insurance sector expanded 0.7 per cent
With recent news of an excellent third quarter for Canada's banks despite a contracting economy, it's perhaps no surprise that the sector has been doing well since at least June. "The broader category has actually been one of the strongest in the past year, so the gain we saw in June doesn't appear to be a one-off," said Douglas Porter, economist at BMO.
- Seres Lu