- GDP declined 0.1% in October
- Weakness (still) concentrated in goods sector, although services also softer
- Transitory factors also at play, but Q4 growth tracking below prior estimates
The 0.1% decline in GDP in October was the first monthly drop in 8 months in what is an often volatile set of data. Output in the goods sector posted a 0.5% decline, and marking the third drop in the last 4 months. ‘Transitory’ factors once again appeared to be at play. Part (although not all) of a sharp drop in manufacturing output was due to Canadian auto-sector production shutdowns as a drop in US production tied to an autoworker strike in September and October spilled over into Canada. That drag might be expected to reverse in the near-term, although with the more permanent shutdown of most production at Oshawa’s GM plant still to come. And not all transitory factors were on the downside in October. The drop in goods output was also despite a bounce-back in North Atlantic oil production that reversed a large drop earlier in the summer.
Still, goods-sector output, particularly manufacturing production, has been soft for some time, both in Canada and abroad as global supply chains were impacted by rising US-China tariffs. An easing in those tensions late this year means that headwind should ease somewhat going forward.
And service-sector output still looks reasonably solid in Canada. Consumer spending growth trends have remained modest at best. But a 1.1% pullback in the retail sector still looks over-stated relative to household income growth trends – notwithstanding an ugly-looking employment report in Canada in November. But a big pullback in wholesale sales in October was also in part impacted by the auto-sector strike. Outside of those components, most service-sector industries continued to grow in October, and output among service-producers was still up 2.0% from a year ago.
To be sure, the October economic data in Canada have been softer-than-expected. We are now tracking an increase in Q4 GDP of less than a percent, below the Bank of Canada’s call for a 1.3%, and our 1.4% call. Monthly economic data in Canada is notoriously volatile. But, still, the softer numbers in October/November data to-date will only increase focus, including at the Bank of Canada, near-term economic data reports, and particularly whether any of the recent weakness is reversed.
