For Your Information
Economy Contracts in Second Quarter
Statistics Canada (StatCan) reports that the economy as measured in gross domestic product (GDP) shrank 0.3 per cent in the second quarter of this year (April, May, June) and continued the decline in July. StatCan found “substantial declines in home resale activities and exports pushed real gross domestic product (GDP) down 0.3 per cent in the second quarter of 2021.” Declines occurred in “exports (-4.0 per cent) and home ownership transfer costs (-17.7 per cent), which include all costs associated with the transfer of a residential asset from one owner to another.”
GDP measures market transactions in money. As such, GDP does not pinpoint problems in the economy or provide any specific information as to a way forward. For example, the fluctuation of business inventories of all manner of goods has a large impact on the GDP. When inventories accumulate, the GDP goes up; when the inventories deplete for whatever reason, the GDP goes down.
StatCan writes, “Businesses accumulated $9.7 billion in inventories, compared with a $6.2 billion withdrawal in the first quarter. The inventory accumulation, which was the major contributor to GDP during the quarter, was led by durable retail goods.” (Chart 1)
Another “predominant contributor” to the GDP is housing, including new construction, renovations and ownership transfer costs. The biggest contributor to GDP is not new construction or renovations, which create new value, but home ownership transfer costs. The “costs associated with the transfer of a residential asset from one owner to another” including the flipping of houses for quick profit, do not produce new housing or new value of any sort. As can be seen from Chart 3, these transfer costs, especially since 2020, have outpaced new value from construction as an element of GDP.
StatCan writes, “Since the third quarter of 2020, housing investment has emerged as the predominant contributor to economic activities and to capital stock — with residential capital stock surpassing non-residential capital stock. Moreover, the average housing investment for the previous four quarters was 17 per cent higher than the average over the last five years.” (Chart 2)
Reading these statements regarding the GDP, one would be surprised to then find out that a large number of Canadians are facing a housing crisis, including homelessness. Such is the detached nature of the GDP statistics. For cartel party politicians to use them to throw mud at their opponents vying for elected positions in Parliament shows how detached they are from the people and the real problems in the economy.