The Canadian Economy and Canadian Industries

1. The Canadian Economy and Canadian Industries

2. Definition of Economy The prosperity or financial health of a place

3. 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?

4. The Business Cycle – Different States of the Economy 5 Main States: • Prosperity • Inflation • Recession • Depression • Recovery

5. 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

6. 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$

7. Quarterly Reports First quarter of the year: Jan 1 to Mar. 31st Second quarter of the year: April 1 to June 31st Third quarter of the year: July 1 to Sept. 30 Fourth quarter of the year: Oct. 1 – to December 31st

8. Economic Indicators

9. 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

10. 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%

11. 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

12. 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%

13. 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

14. 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.

15. 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

16. 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

17. 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

18. Canadian Imports 2008 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

19. Canadian Exports 2008 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

20. Canada’s Major Trading PartnersCanada’s Top 10 Export Markets Source: Statistics Canada: http://www.ic.gc.ca/sc_mrkti/tdst/tdo/tdo.php#tag

21. Canada’s Major Trading PartnersCanada’s Top 10 Import Markets Source: Statistics Canada: http://www.ic.gc.ca/sc_mrkti/tdst/tdo/tdo.php#tag

22. 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

23. 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

24. 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.

25. 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

26. 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.

27. 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

28. 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/economy/index.cfm#top

29. 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

30. 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.

31. 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

32. 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.

33. 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.

34. 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.

35. 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

36. 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

37. 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.

38. 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

39. 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

40. 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: • Energy Efficiency Rebates • Home Improvement Rebates • Government Infrastructure Projects • Bank of Canada interest rate kept low

41. 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)

42. 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.

43. 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.

44. 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

45. Goods-Producing Industry Primarily associated with the production of goods ( Growing of crops, generation of electricity, manufacturing computers and automobiles) Some sectors also producesomeservices like plumbingand house painting

46. 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

47. 1. Goods-Producing Industries 2. Service-Producing Industries The Canadian Economy Wholesale Trade Agriculture, Forestry, Fishing and Hunting Retail Trade Mining and Oil and Gas Extraction Transportation and Warehousing Information and Cultural Services Utilities Finance and Insurance Construction Real Estate and Rental and Leasing Manufacturing Professional, Scientificand Technical Educational Services Automotive Industry 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

48. 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 Mining and Oil and Gas Industry Automotive Pulp and Paper Petroleum and Oil Primary Metals Industry Industry Industry Industry

49. For example: Service -Producing Industry Arts, Entertainment and Recreation Accommodation and Food Services Music and Recording Movie/Film IndustryIndustry Restaurant Hotel Industry Industry

50. 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