Download The Canadian Economy

The Canadian Economy
and Canadian Industries
Definition of Economy
The prosperity or financial health of a
place
State of the Economy
If most businesses in Canada are making a profit,
and more profit than they made a year ago,
would those results indicate a healthy and good
economy?
If businesses are making lots of profit and are
solvent (able to regularly pay down their debt),
what does that mean for someone looking for a
job?
If people have jobs what does that mean for other
businesses?
The Business Cycle –
Different States of the Economy
5 Main States:





Prosperity
Inflation
Recession
Depression
Recovery
Economic Indicators
Economic Indicators
 Economic statistics tracked and provided by Statistics Canada that
indicate how the economy is doing and/or progressing
Economic Indicators include:
 Unemployment Rates
 Inflation
 GDP
 Balance of Trade (Exports and Imports)
 Exchange Rate
 Prime Interest Rate
 Retail Sales
 Housing Starts
 Composite Leading Indicator
 Federal Debt
http://www.canadianeconomy.gc.ca/english/economy/index.cfm#top
Economic Reporting Periods

Statistics Canada generally provides an
economic report to Canadians quarterly.
(published through the media and on
government websites)
Quarter
 There are 3 months in a quarter of a year
 12 months in a year
 How many quarters in a year? Hint: How many
quarters in 1$
Quarterly Reports
First quarter of the year:
Jan 1 to
Mar. 31st
Second quarter of the year:
Third quarter of the year:
Fourth quarter of the year:
April 1 to
June 31st
July 1 to
Sept. 30
Oct. 1 – to
December 31st
Economic Indicators
Unemployment Rates

The unemployment rate is the percentage of the
labour force that actively seeks work but is
unable to find work at a given time.

Discouraged workers—persons who are not
seeking work because they believe the prospects
of finding it are extremely poor—are not counted
as unemployed or as part of the labour force.
Unemployment Rate. Government of Canada. Statistics Canada, May 2007 [Online].
Available: http://www.canadianeconomy.gc.ca/english/economy/unemployment2.html
Unemployment Rate
Unemployment rate =

Number of unemployed people
x 100%
Number of people in the labour force
A “normal” unemployment rate is considered
about 7%.
 A healthy economy will generally have between
5.5 - 7%

Inflation

The rise – over time – in the price of goods and services across the
economy.

The Consumer Price Index (CPI) is the most commonly used gauge for
measuring inflation.

The Consumer Price Index (CPI) is an indicator of the consumer prices
encountered by Canadians. It is obtained by calculating, on a monthly
basis, the cost of a fixed “basket” of commodities purchased by a typical
Canadian consumer during a given month. It usually measures about
600 products typically bought by Canadians.

The basket contains products from various categories, including shelter,
food, entertainment, fuel and transportation. Since the contents of the
basket remain constant in terms of quantity and quality, the changes in
the index reflect price changes.

Consumer Price Index. Government of Canada. Statistics Canada, May
2007 [Online].
Available:
http://www.canadianeconomy.gc.ca/english/economy/cpi.html
Inflation
If prices increase—but your earnings stay the same—you
cannot continue to consume as much as before.
High inflation makes it more difficult for families, businesses
and governments to plan for the future.
Example:
What $10 purchases a year ago, now costs $11.50.
Inflation (11.50-10.00)/10.00 x 100 = 15%
For a healthy economy, governments like to keep inflation
between 1.5 - 3%
Gross Domestic Product
 Also known as GDP and economic output.
 Gross domestic product (GDP), is the value of the income
generated by production of all final goods and services
produced in a year within Canada ’s borders measured at
market prices.
 Final goods does not include those goods that are used to
make another product. GDP would not include the wheat
used to make bread, but would include the bread itself.
 It is the standard measure of the overall size of
the economy.

Gross Domestic Product. Government of Canada. Statistics Canada, May 2007 [Online].
Available http://www.canadianeconomy.gc.ca/english/economy/gdp2.html
GDP
 In a healthy economy the GDP will
continually rise
Real GDP
 Calculates the GDP taking inflation into
consideration so it is a comparable to
previous results.
Gross National Product

Canada’s annual gross national product (GNP) is the total income
that residents of the country earn within the year.

It includes the wages and salaries of employees, the profits realized
by entrepreneurs and stockholders, the rents received by landlords,
and the indirect taxes (such as the Goods and Services Tax, the
gasoline tax and the provincial retail sales taxes) collected by
governments.

It includes the dividends that Canadians receive from abroad, minus
dividends paid by businesses operating in Canada to foreigners.

GNP is also equal to:
Total Consumer Spending + Total Government
Spending + Total Exports - Total Imports.

Gross National Product. Government of Canada. Statistics Canada, May 2007 [Online].
Available http://www.canadianeconomy.gc.ca/english/economy/gnp.html
Balance of Trade
Balance of Trade
 Relationship between a country’s total imports and total
exports.
Imports
 Goods and services flowing/coming into Canada
Exports
 Goods and services flowing/going out of Canada
Imports may include:
 Raw materials
 Processed materials
 Simi-finished goods,
 Manufactured goods ready for sale.
The less finished the imported goods, the more jobs they create
for Canadians
Balance of Trade
Trade Surplus = E > I
 Export$ are greater than Import$.
 Canadians are selling more products to other
countries than they are importing.
 If surplus is made up of primarily manufactured
goods, then more jobs are created for Canadians.
Trade Deficit = E < I
 Canadians are spending more money on importing
goods from other countries than selling/exporting
goods to other countries.
 Usually means that fewer Canadian jobs are being
provided
Canadian Imports 2008
Forestry
Products
0.64%
Agriculture
and Fishing
6%
Energy
12%
14.50%
Other
16%
Automotive
products
21%
28%
0%
10%
20%
30%
Industrial
Goods and
Materials
Machinery
and
Equipment
Data Source:
“Imports of goods on a balance-of-payments basis, by product” Statistics Canada, September 10, 2009, [Online]. Available:
http://www40.statcan.gc.ca/l01/cst01/gblec05-eng.htm
Canadian Exports 2008
Foresty
Other
6%
Agriculture and Fishing
8%
12%
Automotive Products
19%
Machinery and
Equipment
23%
26%
Industrial Goods and
Materials
Energy
0%
10%
20%
30%
Data Source:
“Export of Goods on a Balance-of-Payment Basis” Statistics Canada. September 10, 2009. [Online]
Available:http://www40.statcan.gc.ca/l01/cst01/gblec04-eng.htm
Canada’s Major Trading Partners
Canada’s Top 10 Export Markets
Country
2004
2005
2006
2007
2008
U.S
84.4%
83.8%
81.5%
78.9%
77.64%
U.K
1.88%
1.89%
2.3%
2.84%
2.7%
Japan
2.08%
2.10%
2.14%
2.05%
2.29%
China
1.64%
1.65%
1.77%
2.11%
2.17%
Mexico
0.75%
0.77%
0.99%
1.10%
1.21%
Germany
0.65%
.074%
0.90%
0.86%
0.93%
South
Korea
0.55%
0.65%
0.75%
0.67%
0.79%
Netherlands
0.47%
0.50%
0.70%
0.90%
0.77%
Belgium
0.55%
0.52%
0.55%
0.66%
0.70%
France
0.58%
0.58%
0.65%
0.69%
0.67%
Source: Statistics Canada: http://www.ic.gc.ca/sc_mrkti/tdst/tdo/tdo.php#tag
Canada’s Major Trading Partners
Canada’s Top 10 Import Markets
Country
2004
2005
2006
2007
2008
U.S.
58.7%
56.5%
54.8%
54.2%
52.4%
China
6.77%
7.75%
8.70%
9.41%
9.83%
Mexico
3.78%
3.83%
4.04%
4.22%
4.13%
Japan
3.80%
3.89%
3.86%
3.80%
3.53%
Germany
2.65%
2.70%
2.82%
2.83%
2.93%
U.K.
2.71%
2.74%
2.74%
2.82%
2.91%
Algeria
0.87%
1.10%
1.25%
1.25%
1.78%
Norway
1.39%
1.59%
1.38%
1.32%
1.43%
South
Korea
1.64%
1.41%
1.45%
1.32%
1.39%
France
1.50%
1.31%
1.31%
1.25%
1.37%
Source: Statistics Canada: http://www.ic.gc.ca/sc_mrkti/tdst/tdo/tdo.php#tag
5. Currency Fluctuations
Converting the value of $1 Canadian dollar to US
currency and other national currencies.
Examples
Nov. 2000 - $100 US  $157 Canadian
Nov. 2007 - $100 US  $98 Canadian
Website to research a history of exchange rates
http://www.oanda.com/convert/fxhistory
Factors Affecting Exchange Rates
1. The financial health of Canada’s economy versus the US economy
2. Interest Rates
Example:
 If the Canadian economy is performing better than the US, the value of the
Canadian dollar will increase. The demand for the Canadian dollar rises.
Demand > Supply, the value rises.

If interest rates are higher than those of other countries while inflation
remains fairly stable, the value of the Canadian dollar will increase.
Foreigners will be attracted to invest in Canadian funds where banks are
providing higher interest rates. Demand > Supply, the value rises.
Information on factors affecting exchange rates:
 http://www.bankofcanada.ca/en/backgrounders/bg-e1.html

http://www.canadianeconomy.gc.ca/english/economy/index.cfm#top
Impacts of Exchange Rates

Canadian economy is largely dependent on the value of imports and exports
which can be greatly impacted by the value of the Canadian dollar.
The US is Canada’s biggest trading partner.
 When Canadian Exports to US > US Imports = Trade Surplus
 When Canadian Exports to US < US Imports = Trade Deficit
Exports decrease when:
–
–
the Canadian dollar increases in value to the US dollar, it makes
exports more expensive.
the US economy is weak and the CD dollar is increasing, the US
will be purchasing less from Canadian businesses
Note: Canadian consumers also tend to purchase more products
from the US because the value of the dollar is higher, and
goods are often cheaper in the US, thus making imports
higher.
Result:
 Less sales revenue for Canadian businesses which in the long run, can end up
hurting the Canadian economy. For example, when businesses are earning less
revenue, profits decrease and if significant decreases occur, businesses may
start laying off employees.
Prime Interest Rates (%)

The Bank of Canada controls the supply of money and
issues paper money into the economy

The Bank of Canada also lends money to Commerical
Banks. (i.e. CIBC, RBC, TD)

Ordinary consumers do not open accounts and borrow
from the Bank of Canada.

When the Bank of Canada reduces the prime interest
rates, it is a signal to commercial banks to also lower
their interest rates for consumers.

http://www.canadianeconomy.gc.ca/english/economy/index.cfm#top
Prime Interest Rates

When interest rates are lower, it encourages people to
borrow money from the bank for major purchases such
as homes, renovations, etc.

It is a measure to increase the flow of money into the
market by encouraging people to spend money.

When the Bank of Canada increases the prime interest
rate, it is trying to reduce the supply of money in the
economy or stabilize it so there is not too much which
would create inflation.

When interest rates increase, more people will save as
opposed to spend as interests rates are higher. It costs
more to borrow money.
Retail Sales

This is a percentage measure of the
increase or decrease in retail sales in all
industries across Canada.

A positive stable number between 1-3%
usually indicates a healthy economy.

http://www.canadianeconomy.gc.ca/english/economy/index.cfm#top
Housing Starts

Indicates a number of new
homes being purchased to be
built.

A positive increasing number
indicates a healthy economy.

http://www.canadianeconomy.gc.ca/english/econom
y/index.cfm#top
Composite Leading Indicator

Information is tracked about changes in key sectors of the economy
that usually precede other changes in the economy.

Thus it provides an indication of the future state of economy.

For example, preparing the ground for new housing developments
and the purchase of a new house usually happens before much of
the production process actually begins which will in turn impact
other businesses in the economy.

Most factories don’t start producing until an order has been filled.

By combining these key indicators for household spending,
manufacturing, exports and financial markets, the overall composite
index provides an early indication about impending changes in the
course of the economy.

Composite Leading Indicator. Government of Canada. Statistics Canada, May 2007 [Online].
Available http://www.canadianeconomy.gc.ca/english/economy/leadingindicators.cfm
The Business Cycle
The Five Different States of the Economy
Prosperity
Inflation
Recession
Depression
Recovery
Note:
 The economy does not necessarily go through each of
the five states sequentially. A recession can end in
recovery with an eventual return to prosperity. Inflation
is generally watched and managed by the government
so as not to allow it to increase or decrease to much.
The Prosperity Stage
 Good, Strong, and Stable Economy
 Most people who want a job are able to find a
job with minimal difficulty.
 Businesses are growing and hiring more people
 Businesses are investing in research and
development and expanding
 People are investing in companies
 People are starting businesses
Prosperity
 Individuals are making a healthy wage and/or salary
 Government is collecting more in tax dollars, spending
money regularly on government programs such as
education, health care, etc and paying off its debts.
 Canada is selling more goods and services to other
countries than it is purchasing from other countries.
(Exports > Imports = Trade Surplus)

GDP and GNP are increasing at a nice steady
rate.
Inflation
The greater the demand for goods (as a result of prosperity
times), the more businesses may charge.
If the price of oil and energy increases as a result of a
prosperity period (more people traveling or consuming
energy to run and operate businesses, factories, etc) then
inflation may result as more energy is used.
The increase cost of energy such as oil, impact general
consumers as the price of gas increases, but also the cost
of most good increases as the costs to ship and
manufacture goods increases as energy prices increase.
As the costs of businesses increase, businesses pass on
these extra costs to customers on the final price of goods.
Inflation
If consumers’ salaries and wages don’t increase to keep up
with the costs of inflation, it may lead to a recessionary
period as individuals stop spending as much or business lay
off employees because they can not afford the increased
wages and salaries
Governments try to ensure inflation remains stable and is
preferred to not exceed 2.5 – 3%.
If inflation is going up, the government may have the Bank
of Canada – which lends money to commercial banks called
the prime interest rate, increase its interest rates to cool
inflation.
When interest rates rise, it becomes more expensive for
individuals and businesses to borrow money so it cools the
demand and purchases of goods, hence slowing inflation.
Recession
Government of Canada
When statistics show a significant drop in economic activity,
lasting more than a few months (more than at least 1 quarter)

Determined by measuring the unemloyment rate and real
gross domestic product (GDP).

Usually lasts about a year, sometimes less, sometimes a bit
more.
Other Recession Indicators
Unemployment rate starts to increase above 7%.
Increase in Business and Personal Bankruptcy
Retail sales decrease and have negative numbers
Energy costs decrease
Housing starts decrease
Shrinking trade surplus or trade deficit
Recessions

Recessions occur for various reasons. Most often,
businesses build up inventories and, consequently, cut back
their production and lay off workers, thus depressing
earnings. The spiralling effect of lower income and low
spending also dampens confidence in the economy.

Large-scale natural disasters such as floods and droughts
or trade wars between countries can induce recessions
Recession. Government of Canada. Statistics Canada, May 2007 [Online].
Available: http://www.canadianeconomy.gc.ca/english/economy/recession.html
Depression

A depression is any economic downturn where real
GDP declines by more than 10 percent and usually
lasts longer than a recession.
For example if a total GDP went from $100 to
$85 = 15% decline.
Unemployment rate increases significantly,
thousands losing jobs, many businesses going
bankrupt and closing.
Depression
More people are collecting welfare and
unemployment
 Demand for government services increases
 Tax dollars to pay for these services declines
significantly
 The governments make cuts to government
services
 The overall quality of life of citizens declines
 Most people can only afford the most basic
necessities
 Businesses can’t survive the decrease in demand
and go bankrupt and/or close

Recovery
The economy starts to improve
Manufacturers slowing begin production as
demand slowly increases
After holding back from spending on anything but
the basics, people are interested in spending
again.
Interest rates increase or decrease to moderate
levels
Recovery Help

Governments will try to implement policies to
encourage people to spend money to help the
economy.
Four Government Initiatives to Help an Economy
Recover in 2009-2010:
1.
2.
3.
4.
Energy Efficiency Rebates
Home Improvement Rebates
Government Infrastructure Projects
Bank of Canada interest rate kept low
Recovery Help
1. Energy Efficiency Rebates
Homeowner are eligible to receive rebates
(giving money back to Canadians) who spend
money on house improvements such as new
energy efficient windows, new energy efficient
gas furnaces, extra house insulation etc.
2. Home Renovation Rebates
The government has also offered rebates of up
to $1300 for individuals who want to renovate
their homes. (new bathrooms, kitchens, floors,
paint, etc)
Recovery Help
3. Government Money into Infrastructure Projects
Roads, highways, government buildings, parks, all
need to be maintained so they remain safe and
effective for the public to use.
Overtime infrastructure needs maintenance and
improvements.
The government invests money into maintenance and
construction projects which impacts many different
types of businesses and thus ensures jobs and benefits
the economy.
Recovery Help
4.
Bank of Canada Interest Rates Remain Low
The Bank of Canada which lends money to commercial
banks reduces its interest rate, it usually causes
commercial banks to lower their interest rates.
When interest rates are low, it means that it is cheaper
for people and businesses to borrow money.
Lower interest rates encourage people to make big
purchases (buy a home) as the cost to borrow the money
is lower.
When people buy homes, it usually stimulates other
purchases (moving company, new furniture, etc) which
help other businesses and hence the overall economy.
Conclusions
These policies encourage people to spend money which
helps businesses who provide jobs and money for people
to continue spending.
The Canadian Economy
Made up of two sectors:
1. Goods-producing Industries
2. Service-Producing Industries
Definition of an Industry
 An industry is comprised of all businesses
involved in a particular field of manufacturing
and/or trade. (see above)
Industry Canada Website: http://www.ic.gc.ca/eic/site/cis-sic.nsf/eng/h_00000.html
Goods-Producing Industry
Primarily associated with the
production of goods
( Growing of crops, generation of
electricity, manufacturing computers
and automobiles)
Some sectors also produce some
services like plumbing and house
painting
Service Producing Industry

Rather than purchasing goods to consume,
consumers are purchasing expertise and certain
skills that individuals and companies offer.

The consumer is usually involved in the delivery
or use of the service.

E.G.
Receiving legal advice
Taking a course
Getting a hair cut
The Canadian Economy
1. Goods-Producing Industries
2.
Service-Producing Industries
Agriculture, Forestry, Fishing and Hunting
Mining and Oil and Gas Extraction
Utilities
Construction
Manufacturing
Automotive Industry
Wholesale Trade
Retail Trade
Transportation and Warehousing
Information and Cultural Services
Finance and Insurance
Real Estate and Rental and Leasing
Professional, Scientific and Technical
Educational Services
Health Care and Social Assistance
Arts, Entertainment and Recreation
Note: Individual areas are commonly
referred to as sectors of the
goods or service-producing
industries.
Accommodation and Food Services
Mgmt of Companies and Enterprises
Administrative and Support
Public Administration
Other Services
Industries and Sectors
Industries can be broken down further into sectors.
 These sectors are their own individual industries.

For example:
Goods-Producing Industry
Manufacturing Industry
Automotive Pulp and Paper
Industry
Industry
Mining and Oil and Gas Industry
Petroleum and Oil
Industry
Primary Metals
Industry
For example:
Service -Producing Industry
Arts, Entertainment and Recreation
Music and Recording
Industry
Movie/Film
Industry
Accommodation and Food
Services
Restaurant
Industry
Hotel
Industry
Other Sources

Liepner E. Michael et al. Exporing
Business for the 21st Century. Toronto:
McGraw-Hill Ryerson, 2001.

Wilson, Jack et al. The World of Business
(5ed). Canada: Nelson Education, 2007