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Economy in Brief

by Carol Stone Canada Corporations Operating Profits Bolstered by Higher Commodity Prices, But ROE Edges Down May 24, 2007

Corporate profits in Canada picked up vigorously in Q1, by 12.2% at an annual rate over Q4 2006 to C$63.8 billion, a record high. While profits have expanded more strongly in recent years, they had slowed in 2006, so this was the best performance since Q4 2005.

As might be expected, the gain was generated in commodity-related industries, where prices have been rising rapidly. A prime example is the oil & gas sector, which staged something of a rebound from a steep decline in Q4. Metals processing industries within the manufacturing sector also saw increases, with manufacturing as a whole up 7.4% on the quarter (at a quarterly rate) and 15.2% from a year ago. Manufacturing profits, as evident in the second graph, struggled in 2005 and 2006, so this Q1 year-on-year performance is the best since late 2004.

Among non-manufacturing sectors, retailing, information and culture, and business services had bounces in their operating profits after weak periods. Real estate and transportation extended trends of less dramatic but consistent growth.

Financial industries, in contrast, saw their profits fall, particularly among security dealers and insurance companies. The financial sector as a whole experienced a decline of 2.5% on the quarter; however, they had been strong in Q4, so the year-on-year result was up 10.4%.

These generally good operating results were offset by lower non-operating revenues and higher expenses and taxes, so that profits after tax rose only slightly, from C$41.6 billion in Q4 to C$42.0 billion. On a not seasonally adjusted basis, this was actually a small decline from Q4, cutting the rate of return on shareholders' equity from 11.94% to 11.76%.

All of these data are contained in Haver's CANSIM database from Statistics Canada.The profits series are reported under "National Accounts", and the non-operating data in "Balance Sheet and Income Statement" and "Statement of Change in Cash Position" in the "Financial" section. Data are available for 17 nonfinancial industries and five financial industries.

Quarterly Averages
CANADA, Bil.C$ Q1 2007* Q4 2006* Q1 2006*
2006 2005 2004
Total Operating Profit 63.8 62.0 59.6 60.9 55.9 48.5
% Change
(Qtrs at Ann Rate)
12.2% 4.1% 7.5% (Yr/Yr) 8.8% 15.3% 19.9%
Nonfinancial Industries 46.2 43.9 43.8 44.1 41.1 35.1
Oil & Gas Extraction 7.4 7.1 8.6 8.1 7.4 5.1
Manufacturing 11.8 10.9 10.5 10.7 11.1 11.3
Finance & Insurance 17.6 18.1 15.9 16.8 14.9 13.5
Total Net Profit 42.0 41.6 37.8 42.1 39.4 33.1
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