Canada’s economy contracted slightly in October, with real gross domestic product down 0.1% from September — the first month-to-month decline since February, Statistics Canada reported Monday.
Economists had projected a flat GDP report for October compared with September, according to financial markets data firm Refinitiv, despite a recent flurry of Statcan reports that indicated significant slowing in some sectors.
The slowing included the biggest month-to-month decline in retail sales since March 2016 as well as significant declines in wholesale sales and manufacturing.
“Markets and the Bank of Canada have been tempted to sound the ‘all clear’ signal . . . but a 0.1% decline in October GDP puts the economy on a chilly path at the start of the fourth quarter,” CIBC chief economist Avery Shenfeld said in a note to clients.
“You have to go all the way back to June to find a monthly growth reading better than a plus-0.1%, so coupled with the steep employment decline reported for November, there’s at least some doubts about the underlying trend late this year.”
Brian DePratto, senior economist for TD Economics, wrote that the Statistics Canada report on Monday sends his bank’s estimate for fourth quarter GDP growth significantly lower, to just 0.5% annualized.
“If borne out, that pace of growth would, in an echo of the retail sales data, be the weakest in more than three years, and fall well short of the Bank of Canada’s 1.3% tracking from their October Monetary Policy report.”
The Bank of Canada has kept its key interest rate on hold at 1.75% since October 2018, despite rate reductions at other central banks including the U.S. Federal Reserve.
Its Dec. 4 rate decision, as well as subsequent comments from Bank of Canada officials, noted that the domestic economy seemed to be resilient but that the biggest risk was from trade conflicts weighing on global economic activity.
Jobs data surprised analysts on Dec. 6 when Statistics Canada announced the economy had lost 71,200 jobs in November, pushing up the national unemployment rate to 5.9% — the highest since August 2018. The monthly jobs report is notoriously volatile, so economists caution not to put too much weight on one month’s results, but the disappointment for November followed a weak October showing.
The October GDP report says October had the biggest month-to-month decline in retail trade since March 2016 — falling 1.1%, with 10 of 12 subsectors down.
There were also declines in wholesale trade (down 1.0%) and manufacturing (down 1.4%).
DePratto, in the TD Economics commentary, said that manufacturing represented the biggest drag on the economy.
“The biggest story there was spill-overs from a U.S. auto sector strike that sent transportation equipment manufacturing 2.5% lower, but there were additional drags,” DePratto wrote.
“Eight of 10 subsectors reported lower output in October, including machinery manufacturing, fabricated metal products, and wood products, as well as rubber and plastics products.”
Those declines were only partly offset by an advance in the mining, quarrying and oil and gas extraction sector (up 0.1% overall) as well as transportation and warehousing services (up 0.6%).