Monday, March 3, 2008

GDP Review

Almost a week without a post. Time to snap that streak.

So, we had 2007Q4 GDP data today. Thoughts are mixed.

Firstly, we did manage 2.7% for the year - entirely respectable, and right around trend. More worringly, we did lose 0.7% in December alone. Statscan takes great pains to alleviate some concerns about that number, but extended holidays at auto plants might be more of a norm than an aberration going forward (not that that justifies a bailout).

Delving into the Canadian Economic Accounts Quarterly Review, we find the per-industry breakdown for December. Manufacturing? Output contracted 3.2%. 2.4% in industrial production. 2% among wholesalers. Heck, even services were down 0.2%. If we wanted other stereotypical bad indicators, there was substantive build-up in inventories in Q3 and Q4.

And yet, I still can't bring myself to pronounce the economic situation bad. Labour income had another great year, up 6.2%, including 1.8% in the Q4, matching the rise in Q4 personal expenditure. Prices are very tame.

I can understand some real concerns about trade at the moment, but I think it's blown out of proportion and we're witnessing a little overshooting - there are a lot of people out there who don't believe that parity, or near-parity, is going to stay with us, and are taking the dream vacation. But that's a one-time thing. Also, as import prices continue to come down, we'll see more Canadian middlemen get a piece - less need to drive to NYC, just stay in Toronto and purchase it.

Right now, I'd characterize myself as ambivalent about the state of the economy.

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