And still it grows

The Canadian media have been crying recession ever since the Bank of Canada started raising rates at the start of the year. So far, the actual economy is refusing to play along. Statistics Canada reported today that real GDP rose 0.1 percent in July, reversing its preliminary forecast of a 0.1 percent decline. Preliminary data for August call for a flat outcome. 

In truth, there is not a whole lot to like about the July data, though it is remarkable to see the Canadian economy still performing significantly stronger than the US. Growth in July was led by the goods-producing sectors, which showed a 0.5 percent gain. This was the result of particular strength in resource extraction (up 1.9 percent) and agriculture (up 3.2 percent).  This was partly offset by a 0.5 percent fall in manufacturing output, led by durable goods, marking the third decline in this sector in the last four months. 

The services sector posted a 0.1 percent decline in the month. Both wholesale and retail trade declined, as did the restaurant sector.  Real estate agents and brokers saw a fifth straight month of falling activity, evidently a reflection of the tighter policy settings at the Bank of Canada. However, activity in the public sector posted a 0.4 percent monthly gain. In all, just eleven of the twenty sub-sectors tracked by StatsCan posted higher output in the month. 

In sum, the Canadian economy is clearly on a significantly slower growth path, but is nowhere close to any reasonable definition of recession, however galling that fact may be to the headline writers. That being said, the economic background against which the Bank of Canada makes its policy decisions has clearly shifted. Slower growth, evidence that the domestic inflation cycle has peaked and growing skittishness in global financial markets all point to the need for much less aggressive policy actions in the months ahead.