Today's Report (11/30/2021)

Real gross domestic product (GDP) rose 1.3% in the third quarter, driven by household spending and exports. As pandemic restrictions were phased out, households and businesses, in Canada and elsewhere resumed normal operations. This raised household spending and created a greater demand for exports. These increases were softened by a substantial decline in housing investments and increased withdrawals of inventories in the quarter.

As restrictions eased, increased spending on semi-durable goods and services reflected the increase in activities outside the home. Expenditures on clothing (+26.8%) and footwear (+30.3%) surpassed pre-pandemic spending. Outlays for services rose sharply. Transport services (+40.3%), recreation and culture services (+26.1%), food, beverages and accommodation services (+29.0%), and personal grooming services (+35.8%) all showed significant increases.

After declining in the second quarter, exports (+1.9%) increased in the third quarter, led by crude oil exports. Imports decreased, with lower imports of pharmaceutical products and toys, games, and small appliances leading the decline. The terms of trade fell, as higher growth in import prices outpaced export prices, reversing the marked increases in the previous four quarters.

The Canadian GDP quarter over quarter annualized came out at 5.4%, higher than forecasts of 3% and the Canadian GDP Month over Month came out at 0.1% just slightly above forecasts.

Market Reaction

Following the release, the USD/CAD saw some movement towards the downside meaning the Canadian Dollar Was Strengthening against the US Dollar.

What Is It?

The Gross Domestic Product released by Statistics Canada is a measure of the total value of all goods and services produced by Canada. The GDP is considered a broad measure of Canadian economic activity and health.

What Are The Fundamental Effects?

A higher real GDP improves the standard of living for Canadians, however, a GDP growth due to inflation erodes living standards because people pay more for the same.

How Does It Affect The Markets?

CURRENCY - Robust economic activity can firm up interest rates, which increases the demand for the Canadian Dollar. If inflation accelerates and stays high, it can lower the Canadian competitiveness in the world and worsen trade.

STOCKS - A healthy economy generates more business earnings, while a sluggish business environment depresses sales and income. However, higher prices will erode household purchasing power and may force interest rates to go higher.

BONDS - If the economy is growing at or below the pace projected by economists, the bond market is likely to react positively. If GDP figures exceed expectations, and inflation pressures are rising, interest rates may be raised, meaning bond prices will lower, and yields will rise.