Canadian Companies Piling up Cash

For the first quarter of 2006, Canadian economy performed better then expected, gaining 3.8% averaged annually. This growth rate was helped immensely by investment and personal spending of typically fiscally prudent Canadians. In contrast, for the same period last year, Canada’s GDP grew 2.6%, which, percentage- wise, represents a difference of almost 45%.

Oddly, the wow effect came mostly from the trade side of the economy. Soaring Canadian dollar stiffed the exports, while domestic “big ticket” items were slaughtered by cutthroat global competition. As far as the so far exemplary mining sector is concerned, it actually declined for the recent quarter. But, unlike our neighbors south of the border, Canadians decided to buy less imported goods. As a result, the net in the country’s current account proved not to be as challenging as everyone originally believed.

Broken down by sector, the service sector led the way, along with the housing and durable goods. By extension, the manufacturing sector also reported slight gains. To illustrate, housing rose 3.4% in comparison to the last quarter of 2005. In spite of rising construction and energy costs, housing investment reported the biggest increase in the past two years.

The bottom line is that in spite of corporate profits slipping slightly in the recent quarter, Canadian companies have piles of cash in their treasuries. That cash can either go back as investment into the companies’ assets, or it can be returned to shareholders. Either way, those who hold Canadian stocks in their portfolios should be very proud of themselves right about now.