Spending: Fuel of the Economy

The economy is fuelled by the spending of four key groups as illustrated below. Anything that affects the ability of or incentive for these groups to spend will affect economic activity. Consumers buy the largest share of economic output, some 47 percent, followed a distant second by foreign buyers at 23 percent. Governments are also significant players, purchasing some 17 percent and investment accounts for the remaining 13 percent. These shares of economic output, in order of relative importance, are comparable to the national level, however, the size of individual shares differs. For example, exports command a smaller share of total expenditures in Newfoundland while the share of government is larger.

Expenditures on Economic Output Diagram C-01198

Consumer spending on certain types of commodities (e.g., automobiles, furniture, appliances, clothing and footwear, restaurants, hotels) is strongly influenced by general economic conditions and consumer confidence. Changes in the size of the population, level of employment, or total income have the propensity to affect economic output because of the influence they exert on the level and mix of consumption expenditures.

Spending on exports is influenced by demand conditions and the Province's competitive position in markets outside the Province, and in some cases by supply conditions within the Province. For example, the recovery of fish stocks and improved landings or the opening of a new mine have the potential to boost the value of export sales, and hence economic activity.

Government current expenditures on goods and services also make a significant contribution to the economy. The Provincial Government accounts for the majority of this spending. Its spending ability in recent years has been impaired by reduced Federal transfers and changing domestic economic and demographic circumstances. Changes in Federal and municipal government spending also affect economic activity.

Investment spending (on physical capital) consists of residential investment (new housing and renovations), non-residential structures (e.g., Hibernia GBS), machinery and equipment (e.g., computers, fibre optic cable), and government investment (e.g., roads, schools and other public infrastructure). The majority of investment spending is business related. Investment is influenced by many factors such as business opportunities, interest rates, taxes, government spending and assistance to business.