Real gross domestic product (GDP) rose 0.7% in the third quarter, the fifth consecutive quarterly increase. Growth in exports, non-residential structures, and business investment in inventories were moderated by declines in housing investment and household spending. Final domestic demand, composed of expenditures on final consumption and capital investment, edged down 0.2%, following a 0.6% increase in the second quarter.
Exports higher on crude oil and crude bitumen
Exports (+2.1%) increased for the second consecutive quarter, led by crude oil and bitumen, and farm and fishing products. Prices of crude oil and bitumen fell in the quarter, while volumes increased significantly. Higher yields in wheat contributed to greater exports of farm products in the quarter.
Imports fell 0.4% in the third quarter, reflecting widespread declines in energy products, including crude oil, natural gas, and nuclear fuel.
Second consecutive quarter with large inventory accumulation
Accumulation of non-farm inventories was $46.8 billion in the third quarter, a record high in additions to inventory. Inventories expanded among the manufacturing, wholesale trade, and retail trade sectors. Manufacturers experienced widespread inventory accumulation, while the retail and wholesale trade sectors recorded higher stocks of motor vehicles as the stock-to-sales ratio for this commodity continued to move upward after reaching historic lows in 2021. Other durable categories in wholesale showed strong accumulation as well, namely machinery and building materials.
The economy-wide stock-to-sales ratio rose to 0.868 in the third quarter of 2022, up from 0.836 in the second quarter. The continued strong pace of inventory accumulation resulted in the highest level of economy-wide stock-to-sales since the second quarter of 2020, when the ratio was 0.968.
Housing investment declines
Housing investment (-4.1%) declined for the second consecutive quarter, coinciding with higher interest rates. Renovations (-6.6%) were down for the second consecutive quarter, and resale activities (-13.8%) were down for the third consecutive quarter. These declines were partly offset by new construction (+2.4%), which rose after four quarters of decreases. Ontario, the western provinces, and Nunavut recorded increases in new housing construction, while the Atlantic provinces and Quebec posted decreases. On a nominal basis, housing investment represented 8.2% of GDP, a decline from the more than double digit proportion from early 2021.
Business investment in non-residential structures (+2.8%) continued to increase, a seventh consecutive quarter of growth. Investment in engineering structures rose 3.3%, led by continued investment on the Kitimat liquefied natural gas project in British Columbia and wind farms in Alberta. Additionally, there was a $64 million disinvestment in weapon systems assets in the quarter, reflecting the continued aid provided to Ukraine in the form of military equipment.
Households cut back spending
Household spending edged down 0.3% in the third quarter, the first decline since the second quarter of 2021. The decrease was mainly attributable to widespread declines in goods (-1.7%). Declines in expenditures on new trucks, vans and sport utility vehicles, furniture and furnishings, and pharmaceutical products were moderated by increased spending on new passenger cars and used motor vehicles.
Growth in services slowed from 4.2% in the second quarter to 0.9% in the third quarter. With conditions getting closer to the pre-COVID-19 pandemic era, expenditures by Canadians abroad, including travel (+20.3%), continued to rise in the third quarter.
Gross domestic product implicit price
The GDP implicit price index declined 1.4% in the third quarter, the first decline since the second quarter of 2020. Consequently, nominal GDP fell 0.7%, following a 4.0% increase in the second quarter of 2022.
Substantial declines in prices of exported crude oil and crude bitumen and of lumber were moderated by increases in household final consumption. The implicit price of household final consumption rose 0.7% in the third quarter, a slowdown from the 2.0% rise one quarter prior, as growth in the implicit prices across durables, semi-durables, non-durables and services all decelerated. The price index for household final consumption expenditure (excluding food and energy) rose 0.8% in the third quarter, the ninth consecutive quarterly increase.
The terms-of-trade—the ratio of the price of exports to the price of imports—declined 6.3% in the third quarter. Decreased terms-of-trade pushed down real gross national income (-1.4%) in the third quarter, the first decline since the second quarter of 2020.
Compensation of employees rises at a slower pace
Compensation of employees rose 1.2% on a nominal basis, as both employment and average earnings were up. Even so, this was the lowest growth in wages and salaries since the second quarter of 2020, when compensation declined sharply. This weakness was mainly due to slower wage growth in the goods-producing industry (+0.8%). The top contributors to overall wage growth were in the finance, real estate, company management (+3.6%), professional and personal services (+1.2%), and information and cultural (+5.0%) industries.
Manitoba (+2.2%) had the largest increase in compensation in the third quarter, followed by the Northwest Territories including Nunavut (+1.9%) and Ontario (+1.7%). Compensation in Newfoundland and Labrador (-0.7%) and Nova Scotia (-0.2%) decreased following relatively strong growth in the previous quarter.
At the end of September, tropical storm Fiona swept through the four Atlantic provinces and Quebec. This was the costliest and most destructive tropical storm to have hit Atlantic Canada; estimated insured damages totalled $660 million. Many residents of hard-hit areas were unable to attend work. However, wages from overtime work resulted in a net wage gain of $49 million in the affected provinces.
Household savings rate increases
Household disposable income rose 0.8%, while the growth in household spending slowed from 4.3% in the second quarter to 0.5% (in nominal terms) in the third quarter. Consequently, the household saving rate rose from 5.1% in the second quarter to 5.7% in the third quarter. By comparison, the savings rate in the third quarter of 2019 was 2.5%. The household savings rate is aggregated across all income brackets; in general, savings rates are greater in higher income brackets.
Household property income receipts, comprised of items such as interest and dividend incomes, were up 4.4%, fuelled by rising interest on deposits that reflected higher interest rates. At the same time, property incomes paid, which includes mortgage and non-mortgage interest expenses, rose 21.5%, as borrowing costs continued to climb. The Bank of Canada announced two increases to the policy rate in the third quarter, and the rate reached 3.25% in the third quarter from 1.5% at the end of the second quarter.
Corporate incomes retreat, but remain elevated
In the third quarter, increasing export volumes were more than offset by the drop in energy prices, resulting in a 7.0% decline in the value of nominal energy exports. Non-financial corporate incomes fell as energy-related industries recorded lower gross operating surplus, while non-financial corporations overall were down 5.0% in the third quarter following a 9.1% rise in gross operating surplus in the previous quarter. However, nominal energy exports remained 32.2% higher in the third quarter than they had been in the last quarter of 2021, while non-financial surplus was 8.0% higher in the third quarter of 2022 than that recorded in the last quarter of 2021.
The gross operating surplus of financial corporations fell 2.3% in the third quarter of 2022, the fourth consecutive quarterly decline. However, this followed a strong 2021 in which the financial surplus rose 16.9% compared with 2020. Strong investment activity, equity markets, and lending in 2021 have cooled since the beginning of 2022.