Canada: Softer GDP data in October – RBC

Nathan Janzen, senior economist at the Royal Bank of Canada, explains that Canada’s 0.1% decline in GDP in October was the first monthly drop in 8 months in what is an often volatile set of data.

Key Quotes

“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.”

“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.”

“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.”