Ontario economic snapshot for Oct. 29, 2011
Troy Media – Central 1 Credit Union
Retail sales in Ontario increased 0.9 per cent to $13.5 billion in August, the fourth monthly gain in the last five months, according to the latest estimates from Statistics Canada.
Sales totalled $5.4 billion in metro Toronto in August, down a slight 0.3 per cent from July. In the rest of the province, sales totalled $8.0 billion, up 1.8 per cent from July. Sales of motor vehicles and parts increased 0.8 per cent to $2.7 billion. Thesefi gures are seasonally adjusted.
Growth in consumer spending has been under pressure recently from rising household debt levels, modest income growth, declining equity markets and cross-border shopping. Retail sales in Ontario are higher this year than last, although the annual growth rate has slowed. In the first eight months of 2011, sales totalled $103.9 billion, up $3.5 billion (3.5 per cent) from the same period last year. Year-to-date sales are up 5.0 per cent year-over-year in metro Toronto. In the rest of the province, sales are up 2.5 per cent on the same basis.
Year-to-date sales of motor vehicles and parts are up 3.7 per cent year-over-year. As retailers enter the busiest season of the year the near term outlook is positive but subdued. Household borrowing decelerated in the latest quarter despite very low interest rates. Employment and income gains will drive consumer spending growth. Slower housing sales and higher prices for gasoline and food will dampen growth and draw spending away from discretionary items. Ontario retail sales are predicted to increase 4.0 per cent in 2011 and 5.0 per cent in 2012 compared to 5.4 per cent in 2010.
Decrease in GDP
Economic growth stalled in Ontario in the second quarter of 2011, according to the latest estimate from the Ontario Ministry of Finance. Gross domestic product (GDP) in real terms (i.e. net of price inflation) decreased 0.3 per cent from the first quarter following seven consecutive quarterly gains. The decline was led by a higher international trade deficit as imports increased, while exports declined. Most sectors of the domestic economy continued to expand in the second quarter.
Real business investment in plant and equipment grew by a robust 4.9 per cent, driven almost entirely by investment in machinery and equipment rather than non-residential construction which inched up. Business inventories increased in the second quarter, led by primary metal and transportation equipment manufacturers, as well as retailers and wholesalers.
Real consumer spending inched up 0.2 per cent in the second quarter as growth in spending on services and durable goods was mostly offset by lower spending on semi-durable and non-durable goods. Auto repairs and furniture-appliances led growth, while new and used motor vehicle sales declined. Real residential investment advanced 1.8 per cent, led by new home construction and renovations. Ownership transfer costs declined as existing home sales slowed.
Real exports declined 1.4 per cent in the second quarter, while imports increased 1.2 per cent, raising the province’s trade deficit and subtracting 0.2 per cent from real GDP. International exports of autos, consumer goods and industrial materials fell, outweighing growth in exports of machinery, equipment and agricultural products. All categories of international merchandise imports increased, except autos as supply chains were disrupted by the Japanese tsunami. Interprovincial exports of goods and services were little changed in the second quarter, while interprovincial imports fell 1.6 per cent.
Labour income inched up 0.2 per cent in current dollars in the second quarter despite rising employment. Meanwhile, corporate profits declined 3.5 per cent as earnings fell for both financial and non-financial enterprises. Economy-wide price inflation rose 0.4 per cent in the second quarter, led by clothing, food, tobacco, fuel, construction and imports.
Lower real GDP in the second quarter was led by declines in auto manufacturing, telecommunications, retail-wholesale trade, finance-insurance-real estate services and education services. Declines in these industries were mostly offset by growth in other service industries, utilities and construction.
Looking ahead, we forecast that Ontario’s moderately robust economic recovery will undergo a mid-cycle slowdown through mid-2012, followed by a moderate re-acceleration through to 2014. Slower growth in the U.S. economy and deficit reduction by domestic governments and households are dampening sources of growth not completely offset by increased business investment.
Real GDP growth is forecast at 2.0 per cent in 2011, 2.2 per cent in 2012 and 2.6 per cent in 2013. Since 1981, Ontario’s real GDP has grown by an average of 2.6 per cent per year.
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