Real GDP rose 0.5% in the second quarter, following a 0.4% increase in the first quarter. The second quarter saw an improvement in government final consumption spending, an increase in business investment in buildings, machinery and equipment, and an increase in household spending on services. However, these increases were offset by a decline in exports, a decline in residential construction, and a reduction in household spending on goods. On a per capita basis, GDP fell 0.1% in second quarter, marking the fifth consecutive quarterly decline.
Government Spending Increases as Wages Rise: Government spending rose 1.5% in the second quarter, driven by higher compensation and hours worked across all levels of government. Purchases of goods and services by federal and provincial governments also rebounded in the second quarter, following a decline in first quarter. Business investment in machinery, equipment and engineering structures increased: “Businesses increased their spending on machinery and equipment by 6.5% in the second quarter, driven by higher spending on aircraft and other transportation equipment and parts. This was coupled with higher imports of aircraft and ships.
Business investment in non-residential structures increased by 0.5% in the second quarter, driven by higher spending on engineering structures, particularly in the oil and gas sector. In contrast, business investment in non-residential building construction decreased by 1.2%, driven by lower investment in commercial and industrial structures. Business spending on intellectual property products also increased by 0.3% in the second quarter, with a notable increase in spending on mineral exploration and evaluation (+4.5%).
Household spending slows in the second quarter: Household spending growth slowed to 0.2% in the second quarter, after a 0.9% increase in the first quarter. Increased spending on rental fees for housing, food, and electricity drove the growth in the second quarter. In contrast, lower purchases of new trucks, vans.
Exports fell more than imports
Population growth also outpaced the increase in household spending in the second quarter. As a result, household spending per capita fell 0.4% after rising 0.3% in the first quarter.
Net trade weakened: Exports fell more than imports: Exports of goods and services fell 0.4% in the second quarter, after recording a 0.5% increase in the first quarter. Exports of raw metals such as gold, silver and platinum fell, along with declines in exports of passenger cars, light trucks and refined petroleum energy products. However, increased exports of crude oil and bitumen offset some of the decline.
On the other hand, imports of goods and services fell 0.1% in the second quarter, after remaining flat in the first quarter. Declining imports of machinery, equipment, industrial parts, commercial services and refined petroleum energy products led the decline, while higher imports of passenger cars and light trucks mitigated the overall decline.
Residential construction continues to decline: Declines in eight of the past nine quarters: Housing investment fell 1.9% in the second quarter, the largest decline since the first quarter of 2023. The decline was led by a 1.6% decline in new construction investment, with single-family and condo projects falling significantly, particularly in Ontario. Renovations also fell 2.6%, and property transfer costs, which reflect resale market activity, fell 1.1%, due to lower activity in Ontario.
GDP deflator rises on higher service prices: The GDP inflation index rose 1.1% in the second quarter, driven by higher household consumption prices for services. The terms of trade ratio of exports to imports fell 0.1% in the second quarter, as import price growth outpaced export price growth
Employee compensation rises
Employee compensation rose 1.6% in the second quarter after rising 1.5% in the first quarter. Growth in the second quarter was driven by wage increases in health care and social assistance, education services, and finance and insurance. Retroactive payments related to arbitration awards to members of the Ontario Secondary School Teachers’ Federation and the Ontario Elementary School Teachers’ Federation were a major contributor to wage growth in education services. Among all industries, wages and salaries in mining, oil and gas extraction (+5.6%) posted the strongest growth in the second quarter.
Household saving rate boosted by higher wages: Household saving rate reached 7.2% in the second quarter, as disposable income growth outpaced increases in nominal consumer spending. The increase in disposable income came mainly from wages and salaries, which helped lift the saving rate.
Investment income growth slowed in the second quarter, rising 2.8%, driven by higher interest receipts and dividends. Meanwhile, household income payments, including mortgage and non-mortgage interest expenses, rose at a faster pace of 5.7% compared to the first quarter’s 4.1% increase. Despite the Bank of Canada’s key interest rate cuts in June and July, many mortgage borrowers still face higher renewal costs due to rate increases that began in early 2022.
Higher-income households have a greater ability to earn a larger share of investment income than lower-income households, which bear interest expenses that make up a larger portion of their disposable income.
Income for businesses: In the second quarter of 2024, total corporate income, or gross operating surplus, rose 3.1% after declining 5.6% in the first quarter. The operating surplus of non-financial corporations increased 3.1%, driven by gains in the oil and gas extraction sector, while the surplus of financial corporations rose 2.9%.
