Tuesday's announcement of the 2005Q4 GDP numbers provides the background for this week's entries.
First up is Jim Stanford's column in Monday's Globe and Mail, in which he notes that profits have been growing strongly, but
Unfortunately, the investment response to this inflow has been uninspiring, to say the least. Corporate capital spending has grown less than 20 per cent since 2000, declining as a share of GDP.
If high profits weren't leading to higher levels of fixed business investment, that would definitely be a cause for concern - although not necessarily a reason for increasing corporate tax rates. But is it in fact the case? The reference to 'corporate capital spending' bothers me: I've never heard of a data series with that name, and a search of CANSIM (Statistics Canada's main source of economic data) leaves me no wiser as to what he meant.
Here's what I did find*. First, there's little reason to claim that increases in profits aren't being matched by corresponding increases in investment:
The run-up in profits over the past three years has been accompanied by an even faster increase in investment in investment. Indeed, as a proportion of GDP, expenditures on machinery and equipment are at a 45-year high:
This is worrisome. I don't know where Jim Stanford got his numbers, but I can't see how they can be reconciled with what are available from CANSIM.
The other item is the banner headline in Wednesday's National Post: "GDP hits historic trillion." Nominal GDP hit $1 trillion some five years ago, but and with the rise in the CAD-USD exchange rate over the past few years, it's apparently hit the USD 1 trillion mark as well. If all goes well, in about 8 years we will no doubt be treated to the following announcement from the Post:
'GDP hits $100000000000000000000000000000000000000000 in binary'
*For those of you who want to try this at home, here are the data sources I used:
- Real GDP: Quarterly, seasonally adjusted at annual rates, chained 1997 dollars (CANSIM series v1992067)
- GDP deflator: Nominal GDP (series v498086) divided by real GDP.
- Profits: Sum of corporate profits (v498077), interest income (v498079), profits of unincorporated businesses (v498081) and net farm income (v498080). Corporate profits account for just over half of the total. These data are nominal, so to get a series I could compare to the rest, I divided total profits by the GDP deflator.
- Expenditure on machinery and equipment: series v1992056.