...against fictions and other tall tales

Saturday, 3 December 2011

Canada's 2011Q3 Economic Accounts: federal deficit increases, saving rate drops, growth in real PDI flat

This is a quick post to go over this week's release of Canada's 2011Q3 Economic Accounts and November's Employment report. The title above says it all but here is some added insight.

The increase in the federal government's deficit will no doubt disappoint the federal Minister of Finance, Jim Flaherty. While a growing deficit is a positive development for the economy, as it provides for additional purchasing power, it is very likely that the Minister will attempt to deal with the enlarged deficit by augmenting the level of expenditure cuts he is planning for the upcoming year. Budget plans for next fiscal year are currently being drawn up in Ottawa. Increasing cuts to public expenditures would only worsen the situation and come at a bad time for the economy.

The drop in the saving rate from 4.1 to 3.5 percent will discourage the Governor of the Bank of Canada, Mark Carney. Since early in the recovery, M. Carney has been trying to persuade Canadians to ramp up savings and pay down debt. I doubt that M. Carney still believes this is possible for the near-term: real disposable income has slowed considerably since mid-2010 and Canada's labour market is not faring well at present. And add to the mix the contractionary effects of fiscal measures aimed at reducing the deficit and it is likely that the saving rate will remain low throughout the next year.

Click on image to enlarge

Finally, the unemployment rate increased for the second month in a row. It now stands at 7.4 percent, only 0.2 percent lower than in November 2010. With government spending about to decline, business investment down in the third quarter and final domestic demand flat, it is hard to be optimistic about the job market moving forward.

Unemployment rate, Source: Statistics Canada


Click on image to enlarge


  1. Thanks for the info.

    Any update on the current account deficit situation? We normally would expect an increase in the federal government deficit to go hand-in-hand with an increase in the personnal saving rate, unless leakage happened through an increase in the current account deficit for example.

  2. The CAB actually narrowed to $12B from $15B. Exports in goods increased during Q3 as a result of modest growth in US and increased demand overseas.


    Note that the graph in my column reflects only change in the federal government deficit. If you take all government combined (consolidated), you notice a constant decrease in the overall public sector deficit. I've added a breakdown of sectoral net lending since 2007 in an Addendum. It seems that shrinking deficits and corporate surpluses might have something to do with it. Both business and government investment slowed in Q3. Could explain the drop in the saving rate (along with slow wage growth).

  3. Interesting that the personnal saving rate is positive while persons and unincorporated businesses are still in a "net borrowing" position (i.e. in a negative cash flow position). I guess this is explained by the fact that borrowings are amortised (i.e. installement loan) over a certain period of time in order to calculate the personnal saving rate, while the net borrowing postion just shows net cash movement.

  4. As far as I know, the only regions with negative personal savings rate are BC, NS and PEI. SK and went negative in recent years but it's now positive.

  5. nice post; very timely. i'm pleased that you highlighted the unemployment increase (nod). i consider it the only significant development that warrants analysis. the rest suggests waiting it out as the current account components adjust their monthlies. the problem is that BoC and Govt may also decide to wait it out.
    @jl. you're correct on the calculus.
    NOD to your dec 2, 2011 post: (http://defricher.blogspot.com/2011/12/la-belle-affaire.html). some at BoC may apprehend the rhetoric outlandish.

  6. Good highlight, circuit.

    There is no reason to assume that the BoC will react to the unemployment problem directly. They'll let persons and corporations affect the deficit and watch from the sidelines on the stimulus. It's the error that the UK made and that Gov. King is challenged with. It's not inviting.

  7. I think you right, Swells. Of course, the feds won't do much either, that is, other than start laying off in earnest. As for the current account, JH, I don't know how much better it'll get. If the CAD falls, there might be *some* temporary relief. But with prices of commodities slowing and manu going flat, I see status quo, at best. Any thoughts as to what else could affect the CAB?

    As for other indicators, I think household debt might be a big one in near term. We'll know more on Dec 13 when the balance sheets are released.