Canadian economic output was effectively unchanged in October, as weakness in the mining, quarrying, oil and gas sector was enough to offset healthy gains elsewhere. 12 of the 20 major industries saw output rise.
The goods-producing side of the economy disappointed. Mining, quarrying and oil and gas extraction fell 1.1%, led lower by declines in non-conventional oil extraction (-3.5%). This partially reflected a loss of capacity due to maintenance operations. Mining excluding oil and gas also fell (-0.8%) on weakness in potash mining. Elsewhere, utilities output declined 1.3%, while construction and manufacturing were both effectively flat on the month.
In contrast, the services side of the economy kept humming along, notching up a 19th straight monthly expansion (+0.2%). Robust gains in wholesale trade (+1.4%) and retail trade (+1.1%) led the way, with the other major sectors turning in mixed performances.
That was disappointing. With nearly all monthly indicators looking healthy, the oil sector threw a wrench in what was otherwise looking like a solid month. While there remains cause for optimism as several one-off factors reverse, there does appear to be less momentum heading into the fourth quarter than both we, and the Bank of Canada were expecting.
As it stands today, fourth quarter growth now looks likely to come in below the Bank of Canada’s expectations of 2.5% (annualized).
Given the data-dependency of the Bank of Canada, this means that a hike in January is less likely. That the weakness in October can be put down to specific factors, and that consumer spending remains strong should provide some solace to Governor Poloz. Nevertheless, he may want to see confirmation that October was just a blip before making his next move.