Canadian Economy Stalls Out in October

We expressed concern just a few weeks ago here about the whether the Canadian economy might be entering a slowdown. Our discussion of Q3 GDP indicated just scattered evidence, but our edginess increased due to an outright contraction in the monthly GDP for September that Statistics Canada calculates from industry data.

In today's report, the September figure was revised lower, now showing a 0.4% decline instead of the 0.3% reported initially. Then in October, there was almost no movement at all. The total was down a minuscule C$160 million, a change of 0.01%. This was almost exactly divided between good-producing and service-producing sectors, which fell C$80 million and C$79 million, respectively. Among the goods-producing industries, manufacturing is undergoing an active contraction, with declines of 1.8% in September and 0.8% and October; its activity is running 4.2% below last October.

Services are seeing a kind of bifurcated performance, with weakness in those sectors related to the distribution of goods -- wholesale and retail trade, transportation, etc. -- and continuing growth in the purer service areas, such as finance and health care. The pattern in arts, recreation and travel-related has been interesting: those industries were weak back in the summer, but picked up nicely beginning in August. This was the time when gasoline prices turned down, and we wonder if the relief there gave a boost to late summer and autumn recreation.

Further, press reports today also highlighted a fall in retail sales. These were off 0.5% in October in real terms. In current C$, the total was off 0.7%, but some of this is due to a 2.5% decrease at gas stations, likely due to prices. Other store groups, again in current dollars, saw declines, but some of this is monthly volatility in sectors that had been strong in September, especially clothing and shoes. But there were also decreases in furniture, building materials, general merchandise and sporting goods. So consumer demand, which has heretofore held up well, is now showing some hesitation.

In any event, we seem last month to have been right, unfortunately, to be concerned about Canada's growth prospects and will continue to monitor this developing situation.