- The increase in November GDP was stronger than the 0.3% expected going into the report and followed a smaller October decline of 0.2%, which was previously reported as down 0.3%.
The reversal of the October weakness in November was most evident in the goods-producing industries where activity rose 0.9% that almost fully reversed the 1.0% drop in October. This strengthening pattern was evident in most of the key subsectors including: manufacturing (up 1.4% after dropping 1.7% October), construction (1.1% versus –0.6%) and mining (1.4% versus –0.5%). One area breaking with this pattern was utilities where unseasonably warm winter temperatures contributed to output dropping 3.0% in November after a 1.9% decline in October.
Output in service-producing sectors rose 0.2% after a 0.1% gain in October. The month saw strong gains in retail trade, which rose 0.7% thus matching October’s strong increase, and finance and insurance, which jumped 1.5% that more than reversed declines over the three previous months. Statistics Canada attributed this largest increase since December 2014 in finance and insurance to "higher investment revenues."
Today’s data bode well for overall Q4 GDP growth to remain in positive territory pointing to a gain of 1.8% which is up from our previously-estimated 1.5%. Though this increase would still be down from the 3.5% increase recorded in Q3 that increase was temporarily buoyed by oil sands production rebounding from wildfire-related shutdowns in Q2 that sent GDP growth into negative territory declining 1.3%. Q4 growth is expected to be restrained by a major drawdown in inventories that look likely to subtract almost 4 percentage points from the growth rate though this will be offset by solid consumer spending and strengthening net exports. An expected return to inventory accumulation in the current quarter and continued strong household spending bodes well for positive growth to continue at an above-potential rate going forward. Our current forecast has Q1 growth of 1.9%. This will be below the Bank of Canada’s latest forecasted increase of 2.5% though it will be sufficiently strong to put downward pressure on the unemployment rate. The prospect of tightening labour markets is expected to keep the Bank of Canada on the sidelines maintaining the current 0.50% overnight rate. Expected sustained above-potential growth going forward will eventually return the Bank of Canada to tightening mode though such is not expected until 2018.