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Six nifty things from the GDP report, four of which may brighten your day

These are stories Report on Business is following Friday, May 30, 2014.

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Six neat points
Canada's economy limped through a brutal winter, with growth slowing to an annual pace of 1.2 per cent in the first three months of the year.

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It was the slowest growth since the fourth quarter of 2012.

Today's measure by Statistics Canada of gross domestic product in the first quarter marked a deceleration from the 2.7 per cent of the final three months of 2013.

While growth slowed, Canada's economy still outpaced that of the United States, whose economy contracted to the tune of 1 per cent, annualized, in the first quarter.

The Statistics Canada measure came in below the expectations of economists, who had expected a reading of up to 1.8 per cent.

On a monthly basis, the economy inched ahead by 0.1 per cent in March to cap the quarter.

Here are some interesting points from an otherwise weak showing:

Household alert: "Disposable income grew 4.5 per cent annualized, but part of the reason that didn't translate into stronger consumption growth was because consumers opted to save more as evidenced by a one-tick increase in the savings rate to 4.9 per cent," said senior economist Krishen Rangasamy of National Bank.

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Hoser alert: The entertainment sector got whacked in the first quarter as the NHL took a break for the Sochi Winter Olympics, down 3.4 per cent. But as the boys came back, so did the sector, rebounding by 5.6 per cent in March alone. Said chief economist Douglas Porter of BMO Nesbitt Burns: "(Hockey matters to this country's economy … although a tad less this morning, with no teams left."

Worker alert: "Compensation of employees rose 1.2 per cent in the first quarter following a 1.1-per-cent gain in the previous quarter. Over all, wages and salaries increased 1 per cent. Wages and salaries were up in services-producing industries (+1.1 per cent) and goods-producing industries (+0.7 per cent)." See, you're doing better.

Consumer alert: Final consumption among households inched up at half the rate of the fourth quarter, for the slowest since a year ago. That's because we spent less on clothes and shoes (down 1.7 per cent) and cars (down 1.1 per cent). But – you guessed it – we spend more on electricity, gas and other fuels to the tune of 2.1 per cent.

Weather alert: "This downward pressure is expected to be transitory with activity expected to bounce back in the second quarter with the return of more seasonal temperatures. Our current forecast assumes growth rising 3 per cent in the current quarter." That's from assistant chief economist Paul Ferley of Royal Bank of Canada, who provided a current forecast only for growth, not the weather.

Real estate alert: "The housing sector proved to be even weaker than we had expected, contracting 6.3 per cent annualized in Q1.  Activity in the resale sector and new home construction both fell, while renovation expenditures continued to grow," said Toronto-Dominion Bank economist Leslie Preston.

CMHC loses moarket share
Canada Mortgage and Housing Corp., the Crown corporation that has long dominated the country's mortgage insurance market, is losing market share to its private-sector rivals, The Globe and Mail's Tara Perkins reports.

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CMHC insured 27,869 housing units during the first three months of the year for borrowers who had a down-payment of less than 20 per cent.

That number was 39.1-per-cent lower than in the final quarter of 2013, and 6.6-per-cent lower than the same time last year. The steep quarter-over-quarter decline is in large part because fewer homes tend to sell at the start of the year. But another factor – and the main reason for the year-over-year decline – is "decreasing market share," CMHC said.

CMHC is the dominant player in the business. Its two private-sector rivals are Genworth MI Canada and Canada Guaranty. The Crown corporation estimates that 45.3 per cent of the dollar value of outstanding residential mortgages in Canada had CMHC insurance at the end of the first quarter, down from 48.5 per cent a year earlier.

WiFi included?
Canadian hotels aren't cheap – these days, nothing is – but their average rates are well down in a global ranking.

According to Bloomberg's world hotel index, Toronto ranks No. 26, with the average hotel cost at $189 (U.S.) a night. Further down the list, tied for No. 38, are Montreal and Vancouver at $177, with Calgary at No. 49 at $162.

The world's most expensive hotels in the ranking of 106 cities are in Geneva ($308), Dubai ($273), Kuwait City ($253), Zurich ($250), and Miami ($245).

Rounding out the top 10 are Hong Kong ($242), Edinburgh ($241), London and Singapore ($235), and New York ($233). Paris just misses, at No. 11, at $232.

At the bottom are Warsaw ($84), Sofia ($83), Calcutta ($81), Chennai, India, and Makati City, Philippines ($78), and Hanoi ($62).

"Geneva is very expensive because of all the international organizations and the ancillary businesses in the city," Jan Freitag of research company STR Inc. told Bloomberg.

"These people don't tend to pay for themselves and that means they can stay at very high- end properties."

So why exactly has Britain's statistics agency decided to include prostitution and the illegal drug trade in its new measure of gross domestic product?

As The Globe and Mail's Jacqueline Nelson reports, the Office for National Statistics is doing just that, and, in an initial measure, found that those underground activities added more than $18-billion (U.S.) to the economy in 2009.

Here's the take from BMO's Ms. Lee:

"The U.K. is joining the likes of Italy, Finland, Norway and a few other European nations in including prostitution and the drug trade in its GDP calculation. Although there is some speculation that this is being done to boost the size of its economy and, thus, have a smaller debt-to-GDP ratio, there is another reason. The European Union must comply with new Eurostat guidelines, and estimates must be made for all transactions in which 'all units involved enter the actions voluntarily.' Of course, the voluntary part might be debatable. Besides, how accurate will these figures be? How exactly does one collect a data series on the sex trade? Will there be a deflator applied as well, so we can have a nominal and real series? In any event, it is estimated that these new sectors will add 0.7 per cent to GDP as of 2009."

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More


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