Canada’s economy moved back into the slow lane in May, posting a meager 0.1% advance. The poor results set the stage for a sub-par second quarter and year.
The May gross domestic product figure released Tuesday left April’s 0.3% expansion as the only solid month for the economy so far this year.
Economists expected a more robust showing of 0.2%, given previous indicators suggesting retail sales, manufacturing and wholesale trade would all grow.
Retail sales did perform strongly, rising 0.7% after a slightly larger decline in April, while wholesale trade edged up 0.1%, the sixth consecutive advance.
But, manufacturing fell by 0.5%, mainly as a result of lower production of machinery, computer and electronic products and primary metals.
Construction was also down, by 0.2%, a further sign of the slowdown in the residential housing market.
Economists have been downgrading expectations for the economy all year, mostly due to continuing and deepening debt problems in Europe and the anemic United States. Now, many predict further disappointments are in store.
“Perhaps this is as well as we can expect to do when growth in our major trading partners is either lackluster or non-existent,” says Avery Shenfeld, chief economist with CIBC World Markets.
Global weakness helped explain part of the contraction in the export-dependent factory sector, but there were also signs of trouble in the domestic economy.
“The signs are that the housing sector is losing altitude,” says Bank of Montreal economist Doug Porter, noting the decline in residential construction and the 4.8% drop-off in real estate agents and brokers activity.
Scotiabank’s Derek Holt says the April-June period could come in as low as 1.4% annualized, which would not even match the Bank of Canada’s recently downwardly revised 1.8 target.
That would make it the third consecutive quarter of sub-two-per-cent growth in Canada, dating back to the last three months of 2011.
In another release from Statistics Canada, industrial product prices slumped 0.3% in June, including a 4.0% drop in raw materials, a further indicator of flagging global demand.
Such results don’t give much credibility to the central bank’s interest rate tightening bias, Holt adds. Some economists believe bank governor Carney’s likely next move will be to cut interest rates even further, in order to buck up the domestic sectors of the economy rather than raise them and risk further weakening the recovery.
It is also a poor platform for future job creation. “A 1.5%-2.0% range for growth isn’t terrible, but it’s a pace consistent with no progress in bringing the unemployment rate down,” Shenfeld pointed out.
One extenuating circumstance in May was the Canadian Pacific Railway strike, which was partly blamed for the 0.5% decline in the transportation and warehousing services industries.
Overall, seven out of eighteen main industries were flat or negative during the month, with the goods producing sectors combined registering no growth.
On the negative side, the arts, entertainment and recreation sector fell 1.7%, and public administration edged down 0.1%, the fifth straight decrease.