Phil Smith

The Bull Market for Economists Is Over. It’s an Ominous Sign for the Economy.

"Earning a Ph.D. in economics has long been a reliable path to affluence and prestige. Not anymore." www.nytimes.com/2025/07/28/b...

The May 2025 GDP stats for Canada show the economy growing 1.2% over the last 12 months, the lowest such rate in 14 months. The content and media sector continues to decline as does the motor vehicle manufacturing industry, engineering construction, rail transport and the postal service. #cdnecon

No other way to slice it: this is incredibly fucked up.

A significant study released by Statistics Canada this morning casts new and surprising light on real per capita regional income disparities in Canada. After PPP adjustment, Ontario and BC ranked lower in 2021 while the poorer regions correspondingly higher. www150.statcan.gc.ca/n1/daily-quo...

First nat accts estimates from BEA in the US show strong real growth at 3.0% (annual rate) despite big drops in investment, inventory accumulation, exports and federal spending. Why? Imports fell 30.3% after the 1st quarter surge and consumption grew just 1.4%. philipmsmith.shinyapps.io/NatAcctsUSA/

5/5 Finally, it is unclear to me what price indexes are used by DND to deflate defence spending. Here is how defence spending inflation compares to CPI inflation.

4/5 In inflation-adjusted terms, defence spending changed very little (and in fact declined somewhat) between fiscal years 2017 and 2022. It grew substantially in fiscal years 2023 and 2024.

3/5 The number of military personnel surged in 2024 after declining in the previous four years. Expect further growth ahead.

2/5 The government has announced its intent to spend the NATO 2%-of-GDP target in the current fiscal year. Here is what that looks like.

1/5 Today a look at Canadian defence expenditure. Its growth was accelerating even before this year's big boost. Equipment purchases and infrastructure investment account for this pick-up.

Perhaps true in English, but according to Google: "The phrase, in various forms, appears in French literature as early as the 18th century, notably in Pierre Choderlos de Laclos's Les Liaisons Dangereuses. "

Thank you for the kind words.

Finally, Canadian federal transfer payments to provincial and territorial governments for health, education, Equalization and various other programs were 24.5% of revenues in 2025 Q1. They were lower than that in the late 1990s due to the Chretien government budget cuts, but have since recovered.

Business subsidies accounted for 1.1% of Canadian federal revenues in 2025 Q1, a relatively low number although this excludes 'tax expenditures'. The latter are provisions in the tax system that have effects similar to those of subsidies. Finance Canada releases an annual report on tax expenditures.

Total Canadian government transfers to households were 33.4% of revenues in 2025 Q1. This includes a wide range of programs such as Old Age Security, the Canada Child Benefit, EI benefits, the GST tax credit and veterans benefits among others. The spike in 2020 was temporary COVID-related programs.

Canadian foreign aid transfers abroad were 0.8% of federal government revenues in 2025 Q1 and have averaged 1.2% over the last ten years.

Federal government transfers to Indigenous governments have doubled as a share of federal revenues since 2016 and are currently 4.0%. In the 1960s such transfers did not exist, but since then they have risen steadily in an effort to redress longstanding problems due to unfairness and mistreatment.

Merci Renée.

Old Age Security benefits (including the Guaranteed Income Supplement) take up a large share of Canadian govt revenues. Population aging has been a key factor in their recent growth and benefits are indexed to the rate of inflation. They accounted for 15.7% of revenues in 2025 Q1.

Canadian government spending on non-defence goods and services (federal salaries, supplies, consulting, ...) was 16.5% of revenues in 2025 Q1, not much different from ten years ago. This $87 billion expenditure category will be a principal target in the govt's latest budget-cutting effort.

Interest payments on Canadian govt debt cannot be allowed to grow too large relative to federal revenues. They maxed out at 38.3% per revenue dollar in 1990 Q4. Tight monetary policy reduced interest rates and govt fiscal action cut borrowing after that. Today they remain relatively low at 9.3%.

Producing linked quarterly real GDP-by-industry statistics from 1946 to date Success, but with important caveats

I invite you to read my latest paper on Substack about creating 8-decade-long quarterly time series for real GDP by industry here: philip635.substack.com/p/producing-... and you can also download the quarterly numbers here: www.philipsmith.ca/Real_GDP_by_...

Here is a comparison of the growth in income-and-expenditure-based real GDP and value-added-by-industry-based real GDP from 1961 to 2025. The former grew at an average compound annual rate of 2.45% and the latter by 2.52%.

The non-business sector grew almost as fast as the business sector in the first 3 postwar decades as health care and education rose in line with a rapidly growing population. Since 1980 or so the business sector grew more briskly, although the non-business sector has outpaced it since around 2020.

Canadian manufacturing output grew at a compound average annual rate of 4.8% between 1945 and 2006, but has not regained the 2006 Q1 peak value since then. Indeed it has been on a declining trend since 2022 Q1. Given the Trump tariffs, the falling trend might well continue. #cdnecon

True, but the finding that it was deadly was what led to the government actions.

Apropos of nothing in particular, here's a chart of Canadian tobacco products manufacturing in the period after world war two. The industry did very well indeed for about 40 years, before crashing over the next 40 years - for the obvious reason that we learned how deadly the products are. #cdnecon

Of course, the DST is now a weapon that Carney has in reserve to use if things go very sour. He can always reactivate it in response to some further arbitrary Trump actions in future.

Over the last free months Canada has upped its border security, agreed to participate in the Golden Dome, and spend 5% of GDP on defence and it basically all means nothing. No agreement will be stable or secure, even if we can eventually reach one. The new normal in Canada-US relations.