Canadian Real GDP Disappoints in November

Following a flat performance in October, Canadian real GDP slipped 0.1% in November, disappointing expectations for a 0.2% gain.

November's slump was largely attributable to a sharp drop in energy output. Oil and gas extraction (- 2.5%) contracted during the month, due in part to maintenance shutdowns, while support activities for oil and gas extraction were down 3.8%.

Elsewhere in the goods-producing sector, manufacturing (+0.6%) recorded its third straight gain, while the construction (-0.3%) and utilities (-0.6%) sectors recorded declines.

Output from the services-producing sector was up slightly in November, with accommodation and food services (+0.9%) and retail trade (+0.6%) leading the way. The gain in retail trade was due in large part to a rise in activity at auto and parts dealers and clothing stores. On the flip side, wholesale trade (- 0.6%) was down during the month.

Key Implications

After a strong third quarter performance (+3.5%), economic growth in Canada has clearly lost momentum. November's contraction puts Canadian real GDP growth on track for 1.5-2.0% in the fourth quarter.

With a recession in Europe and recent indicators taking some of the shine off the current U.S. growth picture, Canada's export growth will be limited in the near term. Meanwhile, with household debt at record levels and no net job gains over the last six months, consumer spending gains are also likely to be constrained.

Overall, we expect the modest rate of expansion recorded in the fourth quarter to carry over into 2012. Friday's employment report will provide the first glimpse of economic momentum heading into 2012.