Canada avoided the technical definition of a recession by posting a 0.3% annualized growth in Gross Domestic Product (GDP) in the second quarter of 2008, though less than the 0.6% rate economists were expecting. Statistics Canada also reported that the economy contracted 0.8% in the first quarter, worse than the 0.3% slowdown initially reported.

"It is clear growth in Canada has embarked on a softening trend," said Charmaine Buskas, senior economics strategist from TD Securities. "Fortunately, it has not entered a technical recession, but softness is still prevalent. This report was softer than the Bank of Canada's projection but it is unlikely to sway the Bank away from the sidelines, given its admission earlier this week that the risks were to the downside, but that it nonetheless retained a neutral bias."

Speaking in Toronto, Canadian Finance Minister Jim Flaherty said Canada is well positioned to weather the current global economic downturn, but warned of more challenges ahead, particularly in the auto sector. He said income and growth in the second quarter will aid economic activity and that he expects modest growth in 2008.

Canadian real estate sales slumped to a seasonally adjusted 38,870 units in July, down 15.1% from the same month a year earlier. The average selling price for homes sold through the multiple listing service (MLS) also edged down 2.4% from year-ago levels to $302,298, according to figures released by the Canadian Real Estate Association.

The industrial product price index (IPPI), which measures prices as goods leave manufacturing plant gates, rose 0.4% in July, down sharply from the 1.6% month-over-month increase reported in June. The June figure was revised from a previously reported rate of +1.3%. Analysts had expected to see the IPPI increase 1.3% from June.

In the U.S., the personal consumption expenditures (PCE) core deflator, the Federal Reserve's preferred measure of inflation, came in line with expectations, advancing by 0.3% (0.273%) in July, and 2.4% (2.426%) on an annual basis, the U.S. Department of Commerce reported.

The PCE deflator rose 0.6% in the month, contributing to a 4.5% annual gain. The report also showed a 0.7% month-over-month decrease in personal income in July, following a 0.1% gain in June and a 1.8% gain in May. Total personal spending, which comprises roughly 70% of U.S. gross domestic product, rose 0.2%, a slower gain than the previous month's 0.6% increase and in line with expectations.

Rob Carnell of ING bank said the latest real spending figure highlights the second-quarter GDP figures for what they were, "a heavily distorted data set giving an unrealistically optimistic picture of the underlying strength of the economy. 3Q08 GDP should be more representative."

The ISM-Chicago business barometer unexpectedly rebounded in August to its highest reading since June 2007, in part due to the overall export boom, some economists say. The strong reading of 57.9 follows a score of 50.8 in July and surpassed economist forecasts for a reading of 50.0.

The final consumer sentiment survey from Reuters and the University of Michigan received a small upward revision from preliminary estimates in August, with the headline indicator coming in at 63 compared to the preliminary 61.7 level. Economists had expected a small upward revision to 62.0.

Production gained nearly 14 points to 63.4 from 49.2 in July, while new orders saw the fifth month in a row of growth, moving further up to 60.2 from a previous 53.5.

According to the U.S. Institute for Supply Management (ISM), the Milwaukee manufacturing index slipped one point to 43 in August, compared to July's reading of 44 and the 44 reading expected by economists. The production index rose to 37 in August from July's 34 reading, while inventories rose to 55 in August from July's reading of 48.

In overnight news, the flash CPI estimate from Eurostat showed euro zone inflation coming off sharply in August, falling to 3.8% from July's 4.1%. The result surpassed expectations for a modest decline to the 4.0% level.

Speaking in an interview with Bloomberg Television on Thursday, European Governing Council Member Lorenzo Bini Smaghi reiterated the need for the ECB to bring inflation back down below the 2.0% target. "Inflation is still high, too high," Bini Smaghi told Bloomberg Television. "Everyone must adhere to this objective, which is price stability."

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