Economic growth slows on lower export volumes

Real gross domestic product rose 0.8% in the first quarter, after advancing 1.6% in late 2021. Economic activity has expanded in six of the last seven quarters, and, in early 2022, was 0.8% above pre-pandemic levels observed in late 2019.

Lower export volumes weighed heavily on the pace of growth in the first quarter. Goods exports declined 2.7%. Despite gains in five out of the last seven quarters, merchandise export volumes remained almost 7% below pre-COVID levels. After strengthening during the second half 2021, service exports were down 1.1% in early 2022, and remained 14% below their pre-pandemic baseline.

Merchandise import volumes declined 0.9% in the first quarter, after advancing 3.6% in late 2021. Lower imports of energy products contributed to the decline. Merchandise import volumes in the first quarter were about 4% above pre-pandemic levels.

Increases in household spending contributed to economic growth in early 2022. Household outlays rose 0.8%, led by higher spending on consumer durables, including vehicles. Total household outlays remained above pre-pandemic levels for the second consecutive quarter.

Nominal GDP rose 3.7% in the first quarter, following a similar gain in late 2021. Wages and salaries posted their largest quarterly increase (+3.7%) since economic activity ramped up after the initial lockdowns. Household disposable income, buoyed by broad-based wage growth across industrial sectors, grew at a faster pace than personal consumption, pushing the savings rate to 8.1%. Disposable income in the quarter was 13.2% above pre-pandemic levels.

Impact of inflation

Headline consumer inflation accelerated to 6.8% in April, the largest yearly increase in over three decades. Higher prices for gasoline, shelter, food and durables have all put upward pressure on consumer inflation, as supply disruptions coupled with strong demand have continued to fuel price growth.

Annual price increases for both food and shelter have exceeded the headline rate for the last five months. Consumer inflation has outpaced the annual change in average hourly wages, measured from the Labour Force Survey, since the spring of 2021.

Statistics Canada published new results from the Portrait on Canadian Society survey on June 9th, highlighting the impact that rising consumer prices have on the ability of households to meet day-to-day expenses. When asked in which area they were most affected by rising prices, 43% of Canadians answered food. After food, the most affected areas were transportation (32%), shelter (9%) and household operations (8%). Urban residents reported being most affected by food costs, while transportation costs were of greater concern for rural residents. The survey also found that one in five Canadians are either very likely (7%) or somewhat likely (13%) to obtain meals from community organizations over the next six months.

New second quarter data from the Canadian Survey on Business Conditions highlight the impact that cost pressures are having on selling price intentions in the near term. When asked about their expectations over the next three months, nearly four in ten businesses reported that they expect to raise prices, up from over one-third of businesses in early 2022 and one-quarter in late 2021. Over half of businesses in manufacturing, retail trade, accommodation and food services, construction, and wholesale trade expect to raise prices in the coming months.

Unemployment rate reaches new record low

Employment growth resumed in May, driven by sizeable gains in full-time work (+135,000). Headline employment rose by 40,000 as gains in service industries were partly offset by lower employment in the goods sector. Retail trade, educational services, professional, scientific and technical services, and accommodation and food services all posted gains, while employment declined in manufacturing.

The labour market has continued to tighten in recent months. The unemployment rate edged down to 5.1% in May, marking the third consecutive month that the rate has reached a new record low. Similarly, the adjusted unemployment rate—which includes those who wanted a job but did not look for one—fell 0.2 percentage points to 7.0% in May, the lowest rate on record since comparable data became available in 1976.

Total employment in May was nearly 500,000 above its pre-pandemic baseline, with higher employment among core-age workers (25 to 54 year-olds) accounting for 85% of net gains. The employment rate among core-age workers remained at 84.6%, while their unemployment rate held steady at a record low of 4.3%.

The pace of wage growth strengthened in May. Average hourly wages for all employees rose 3.9% on a year-over-year basis, up from 3.3% in April. Average wages increased at a faster pace among permanent (+4.5%) and full-time employees (+4.3%).

In recent months, the number of workers that usually work exclusively from home has declined as health-related capacity limits ease. In May, 19.2% of workers reported that they usually worked exclusively from home, down about five percentage points from January. The proportion of workers with hybrid work arrangements increased slightly to 6.3% in May, continuing a slow upward trend observed since the start of the year.

Source: Statistics Canada