In July through September of this year, U.S. ‘real’ (i.e., after adjustment for inflation) gross domestic product (GDP) growth quarter to quarter and annualized was +3.2%, according the latest estimate from the Bureau of Economic Analysis (BEA).
The comparable figure north of the border, as calculated by Statistics Canada, was a little speedier at +3.5%.
Given all the problems Canada’s economy has been having of late due to weak global commodity demand and prices, especially in the oil and natural gas realm, one might be forgiven for expressing surprise that the northern environs recorded the better output advance.
Indeed, with respect to average period-to-period inflation-adjusted GDP growth over the latest four quarters, the U.S. has come out on top, +1.6% compared with +1.4%, although the margin of difference can be viewed as fairly slim.
Was Q3 2016, therefore, an anomaly? Taking into consideration an extended time frame that includes the whole post-Great Recession period, the answer is, “No it was not.”
For both the U.S. and Canada, the final quarter of contraction during the ‘Big Dip’ was Q3 of 2009. There have been 29 quarters since then. Average quarter-to-quarter real GDP growth (annualized) during those 29 quarters has been +2.1% in the U.S. and +2.3% in Canada.
Canada has come out the winner. Based on a much stronger U.S. jobs market, this is not the result expected. The current unemployment rate is 4.6% in the U.S. versus 6.8% in Canada and even with allowance made for some differences in calculation methodology, there is a sizable gap.
To gain more insight into where the strengths and weaknesses lie in both economies, the following will look at the most important line items that contribute towards total GDP. All percentage changes are in ‘real’ or what are also known as ‘constant-dollar’ terms.
Over the 29 quarters since the Great Recession, personal consumer spending has averaged a little faster rate of advance in Canada than in the U.S., +2.5% compared with +2.3%. Notice that for both countries, household consumption growth has exceeded overall GDP growth.
In the latest four quarters, though, U.S. consumer spending (+2.7%) has outpaced Canadian (+2.2%).
Among consumer spending subcategories, the U.S. durables segment has maintained a much more rapid rate of gain (+6.8%) than Canada’s (+3.6%). The divergence has been smaller in nondurables spending, +2.0% for the U.S. and +1.5% in Canada. And with respect to spending on services, Canada has the lead, +2.6% to +1.7%.
During the shorter time frame (i.e., the latest four quarters), both countries are averaging between +2.0% and +2.5% for nondurables and services, but the U.S. is way ahead in durables, +6.2% versus +0.8%.
The deeper pit dug in the U.S. homebuilding market by the subprime mortgage collapse has led to a storming back in U.S. residential investment (+6.9% on average over 29 quarters), since the Great Recession, that has greatly exceeded the growth pattern in Canada (+3.9%).
More recently, both nations have seen investment in residential structures turn quieter, +1.8% over four quarters in the U.S. and +1.7% in Canada.
Investment in GDP-denominated nonresidential structures has proceeded at a much hastier pace north of the border (+5.6%) than below it (+1.0%) over the long term. The more recent shelving of energy projects, however, has caught up with Canada (-4.3%) worse than the U.S. (-1.8%) in the latest four-quarter averages. Canada did see a big bump of +15.7% in Q3 2016 nonresidential investment in structures on account of a drilling platform installation at the Hebron offshore oil project in Newfoundland and Labrador.
Since the middle of 2009, the U.S. has been leading in the growth of goods exports, +5.5% compared with +4.9%. Over the latest four quarters, it has been the U.S. +2.8% and Canada -0.4%. Canada experienced a huge goods exports swing from Q2 2016 (-17.4%) to Q3 2016 (+9.6%) as shipments of crude from the Oil Sands were first curtailed by a raging wildfire that bore down on Fort McMurray, then were resumed when the conflagration was subdued.
As for goods imports, a line item that takes away (i.e., is subtracted) from total GDP, America has been +5.5% over the 29 quarters and 0.0% over the past four quarters to Canada’s +4.8% and +0.2% respectively.
Government spending in the U.S., with austerity in the forefront of much decision-making this decade, has been -0.9% on average over the long-term, but has changed course to +0.3% over the shorter term. The Canadian public sector has been a bit more open to the notion of spending, +1.1% long-term and +1.8% short term.
Finally, with respect to investment that is most likely to promote productivity advances, the U.S. has been +7.5% on machinery and equipment and +3.7% on intellectual property products long term. Canada’s record, constrained by a weak-valued loonie, – i.e., since many such purchases north of the border are imported − has been weaker in both areas, +3.0% on machinery and equipment and -0.8% on intellectual property products.
During the past four quarters, neither country has seized the initiative in machinery and equipment investments. The U.S. is -5.0% on average and Canada, -5.1%. But in intellectual property product investments, the U.S. is still charging ahead with a +4.6% performance on average over the latest four quarters, while Canada has dropped out of sight, -6.7%.
Since Turn of Millennium
Since Turn of Millennium