Summer is a very special time for economic activity. Schools are closed, the Court is at a standstill and several sectors are dormant due to the holidays.
But how much lower is our gross domestic product (GDP) – the key measure of economic activity – during this period? Is the economy really slowing down, given the greater intensity of certain sectors, such as tourism and construction, which replace winter ones?
My research has led me to discover some surprising things. Among other things, the summer quarter – July, August and September – is the one in which GDP is the highest of the four quarters of the year! As always, there are nuances, but the observation is surprising, given the impression of a general slowdown.
Let’s see. First, economic activity clearly shows seasonal variations, year after year, according to Statistics Canada data.
To better measure trends, the agency seasonally adjusts GDP using a sophisticated process, and it is this seasonally adjusted figure that is most widely publicized, with its variations. When the two curves are plotted against each other, the magnitude of the quarterly variations is evident.
To better understand seasonal fluctuations, I analyzed data from the last 20 years and extracted the portrait by season. Each year, the distribution of economic activity is very similar, with the exception of the pandemic year 2020.
On average, therefore, the summer quarter represents 26.1% of annual economic activity, compared to 23.5% for the first quarter of the year, the weakest, after the holidays. An average quarter would be at 25% of annual activity. Last year, the GDP of the three summer months reached 759 billion.
By looking at the details, we can see to what extent the construction industry increases GDP in the summer and that it partly replaces sectors that are slowing down.
For example, investment in residential and non-residential buildings in Canada totaled $127 billion during the three summer months, or 26.5% of the annual total for this sector. 1And again, these billions include, for Quebec, the two weeks of inactivity during the construction holidays.
Tourism GDP is not as significant as that of construction (16 billion in the summer of 2023 compared to 127 billion), but its seasonal effects are much more significant. For the past 10 years, the summer quarter has represented 38% of annual tourism activities. This includes accommodation and catering in particular.
Moreover, as one might expect, consumption of goods is higher in the 4e quarter, as the holidays approach, and less on the 1er quarter. Between the two, especially in summer, it’s average.
Similarly, public administrations are less active in the summer. In their case, it is the wage bill paid to employees that represents the largest share of the public sector’s contribution to GDP.
But beware, I learned, the impact of the government slowdown during the summer, particularly in schools, is not as pronounced as it should be.
And why? Because vacation pay continues to be counted in GDP, Conrad Barber-Dueck, head of labour income data at Statistics Canada, confirms to me.
In short, camping teachers who are resting with their families continue, for the most part, to be registered in economic activity measured by GDP.
That said, for the private sector, the remuneration component in GDP (including holiday pay) is not as central as in the public sector.
A question also arises: is July slower than the other two summer months? And how does September, the last month of summer, influence the accounts, since it is the month of the new school year?
Unfortunately, current nominal GDP data are not published monthly, so it is not possible to see the differences between the three main summer months.
On the other hand, retail sales are published every month, like manufacturing shipments, which allows us to see things more clearly.
However, in the case of the manufacturing sector, the trend is clear: July is significantly weaker, and this is offset by stronger activity before and after the holidays.
More precisely, June is 5% more active than the monthly norm, while July is 6% less active, a gap of 11 points between the two months. It is as if the holidays had to be “paid” before leaving…
When it comes to retail sales, months vary considerably across sectors. The only constant for most is that January and February are much weaker than other months, by around 20%.
Between the beginning of June and the end of August, sales of beers, wines and spirits are significantly higher (between 11% and 15%) than average, as are those of construction materials (between 10% and 28% depending on the month). September and its return to school bring sales back to normal.
On the other hand, sales of clothing and footwear follow a gradual upward curve over the months, with a peak in December.
That said, one phenomenon is difficult to perceive in the figures: the extra effort that some employees and bosses have to make to cover the absences of their colleagues during the holidays.
Some companies probably have to become more productive in such periods, but such a pace cannot be maintained all year round. It is impossible to always have one’s tongue on the ground, as the Quebec expression goes…
Happy Holidays to all !
1— This amount includes investments in machinery and equipment. For the residential sector alone, investments included in the GDP reached 59 billion on 3e quarter of 2023. The correct term is “gross fixed capital formation”.