Fri Dec 01 07:30:00 CST 2017

Consensus Actual Previous
Annualized 1.7% 1.7% 4.5%
Quarter over Quarter 0.4% 1.1%
Year over Year 3.0% 3.7%

Third quarter gross domestic product slowed to 0.4 percent from the previous quarter following a 1.0 percent increase in the second quarter. On an annualized basis, GDP was up 1.7 percent. From a year ago, GDP was 3.0 percent higher. Increased household final consumption expenditure (up 1.0 percent) was the main contributor, while weaker exports (down 2.7 percent) moderated growth. Final domestic demand grew 0.9 percent, a rate similar to the previous two quarters. Slower growth had been expected after the outsized growth in the second quarter.

Exports fell 2.7 percent while imports were flat in the quarter. Exports of goods decreased 3.4 percent following three quarters of growth. Lower exports of motor vehicles and parts (down 9.0 percent) were the largest contributor to the decline, and were generally attributable to work stoppages and changes to certain models destined for the American market. Exports of metal and non-metallic mineral products (down 4.5 percent), consumer goods (down 3.1 percent) and energy products (down 1.9 percent) also declined. Exports of services advanced 0.7 percent on the strength of commercial services.
Businesses made additions to inventories totaling C$17.2 billion in real terms, marking the third consecutive quarter of accumulation.

Household final consumption expenditures were up 1.0 percent as households increased their outlays on both services and goods. The main contributor was increased expenditure by Canadians abroad in tandem with an appreciating Canadian dollar. Business gross fixed capital investment slowed to 0.4 percent from 0.7 percent in the previous quarter. Investment in non-residential structures, machinery and equipment and intellectual property products all increased, albeit at slower rates than in the strong second quarter. Investment in residential structures fell for a second consecutive quarter.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. There is no quarterly flash estimate and the first report is typically not issued until around the end of the second month after the reference period. This has the advantage of limiting the size of any future revision and also accommodates the inclusion of the GDP expenditure components.

GDP is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Stock market Investors like to see healthy economic growth because robust business activity translates to higher corporate profits. The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. Unlike the U.S., Canada produces only one estimate per quarter once full data are available for all components. Most production reports that lead to Canadian GDP are released before the official GDP number. Therefore, actual GDP figures usually confirm expectations. However, an unexpected release can move markets due to the significance of the figure.

GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.

Each financial market reacts differently to GDP data because of their focus. For example, equity market participants cheer healthy economic growth because it improves the corporate profit outlook while weak growth generally means anemic earnings. Equities generally drop on disappointing growth and climb on good growth prospects.

Bond or fixed income markets are contrarians. They prefer weak growth so that there is less of a chance of higher central bank interest rates and inflation. When GDP growth is poor or negative it indicates anemic or negative economic activity. Bond prices will rise and interest rates will fall. When growth is positive and good, interest rates will be higher and bond prices lower.

Robust GDP growth signals a heightened level of economic activity and often a higher demand for the domestic currency. At the same time, economic expansion raises concerns about inflationary pressures which may prompt monetary authorities to increase interest rates. Thus positive GDP readings are generally bullish for the Canadian dollar, while negative readings are generally bearish.