- Real GDP fell 0.1% in October. Thirteen of 20 major sector groupings reported higher levels of output as declines were concentrated in a few sectors, notably manufacturing.
- Indeed, the biggest drag on overall activity came from manufacturing (down 1.4%). The biggest story there was spill-overs from a U.S. auto sector strike that sent transportation equipment manufacturing 2.5% lower, but there were additional drags. Eight of 10 subsectors reported lower output in October, including machinery manufacturing, fabricated metal products, and wood products, as well as rubber and plastics products.
- Performances among other goods-producing industries were mixed, leaving the sector as a whole down 0.5% month-on-month, the third decline in the last four months.
- Among the service sectors, output was flat, but this masked significant divergence in performances. Retail and wholesale trade fell markedly (-1.1% and -1.0% respectively), offset by better performances among sectors including real estate (+0.3%), transportation (+0.6%), and professional services (+0.3%).
Key Implications
- Bah humbug. Today’s report may be seem easy to dismiss on its face given a the strike-related disruption was well known in advance, but moving past that impact reveals some concerning weaknesses. The drop in manufacturing extended beyond the auto sector and its supply chains, and the pull-back in retail sales was the biggest in more than three years. What’s more, updated data for September revealed a much weaker hand-off, with nearly 0.1 percentage points taken out of the headline, due to lower than thought activity in construction and manufacturing.
- Even penciling in a decent pop-back in activity for November, today’s report sends our fourth quarter GDP tracking significantly lower, to just 0.5% annualized. If borne out, that pace of growth would, in an echo of the retail sales data, be the weakest in more than three years, and fall well short of the Bank of Canada’s 1.3% tracking from their October Monetary Policy report.
- Indeed, while one month hardly makes a trend, consumer spending, alongside real estate, is a key area the Bank of Canada has indicated it will be watching for signs of economic resilience. Don’t write off monetary easing in 2020 just yet.
