A report today from Statistics Canada showed that real GDP grew at a 2.3 percent annualized rate in the third quarter of the year, after a "technical recession" (two tiny declines) in the first two quarters of the year.
A report today from Statistics Canada showed that real GDP fell 0.5 percent month-on-month in September, after three consecutive monthly gains, raising fears that the recovery from the "technical recession" in the first half of the year might be stalling.
Oh dear. Back when I got paid for doing this kind of thing, StatsCan's monthly and quarterly GDP/GNP data were kept separate, partly because the definitions used were somewhat different (the monthly numbers were GDP at factor cost, if you're feeling technical). Now, as happened today, they're often released at the exact same time, which leads to all sorts of confusion, particularly in the media, where nowadays the "business reporter" might well be doubling up as a basketball columnist or something such.
There's more data in the quarterly report, but to figure out what happens next, it's arguably more useful in this instance to look at the monthly data. Here's why: if GDP fell by a non-annualized 0.5 percent in September, then the level of GDP at the end of the quarter was lower than the average level for the quarter as a whole. This means that even if the economy started recovering again on October 1, GDP will take some time to get back to the Q3 average. This immediately makes it unlikely that Q4 as a whole will show very significant growth, even if the three individual months are all in positive territory.
The biggest contributor to the September weakness was, no surprise, extraction and quarrying, including oil. This fell by a vertiginous 5.1 percent non-annualized in the month. Drilling-related activities fell even faster, and are now down by almost half in just the past twelve months. When the oil price collapse began, there were brave suggestions from producers that they would maintain business as usual, but as the price weakness has extended with no end in sight, that resolve has clearly vanished.
As worrying as the fall in extraction industries is the report that manufacturing output fell 0.6 percent in the month. Coming after three consecutive gains, this may be just a blip in the data. However, it's clear that the weakness in the exchange rate has not had the salutary effect on manufacturing that the Bank of Canada and others have been counting on. As I have said repeatedly in this blog, the problems in this sector are clearly as much structural as cyclical.
What are the short-term prospects? There is little chance of any improvement in the oil and gas sector as long as world prices remain at current levels, and the recent US decision against the Keystone XL pipeline will weigh on the oil sands in particular. Manufacturing should be supported by the relative strength in the US economy, but there is no real prospect that it can take up all of the slack created by the weakness in oil.
One minor source of optimism for the October data is the recent election. Employment data jumped in the month because of temporary hiring of election workers, which should translate into a small boost in GDP for the month. However, that will be a purely transitory effect. It seems likely that Q4 GDP will grow at or below the rate just reported for Q3, which means that the Bank of Canada will be standing pat on rates for many months to come, regardless of what the Fed decides later this month.
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