Canadian economic activity expanded by 0.3% month-on-month in October. The growth came from a healthy base, as 15 of 20 major industries expanded on the month.
On the service side (up 0.3% m/m as a whole), notable strength was reported in finance and insurance (+0.9%) and wholesale trade (+1.0%), with the latter more than reversing its September pull-back. Transportation and warehousing was an exception, as rotating strikes at Canada Post contributed to a -0.3% change in October.
Output in the goods-producing sectors (+0.3%) was driven by a robust expansion of manufacturing activity (+0.7%), supported by the machinery and primary metals subsectors. Utilities output was also up (+1.5%), helped by extreme snowfall in Alberta and cool weather across the country in October. The mining, quarrying, and oil and gas sector was up modestly as a whole (+0.2%). A rebound in oil and gas after earlier shutdowns helped offset softness in the mining subsectors.
Key Implications
Not too shabby. After a couple of months treading water, the Canadian economy recorded a solid expansion in October. The breadth of the expansion was particularly encouraging, even as construction activity remained a weak point for a fifth straight month.
This breadth will come into play in the months and quarters ahead. November saw the worst of the discounts on Canadian oil blends, and voluntary production curtailments are likely to weigh on activity (see our earlier report). This will sap overall growth, even before mandatory production cuts come into effect in January, expected to drag 2019Q1 growth lower by roughly a percentage point (as discussed in our latest Quarterly Economic Forecast).
Even with today’s data, we are tracking Q4 growth at a modest 1.7% (q/q saar), below the Bank of Canada’s October forecast of 2.3%. With the oil sector still facing elevated uncertainty due to low (and volatile) global prices, and core inflation measures well-contained, the urgency to hike interest rates has clearly lessened.
The balance of risks, as well as the realities of statistical release timings, continue to favour a pause until spring 2019 to ensure that economic dynamics generally, and the oil sector in particular, are indeed moving as we (and they) would like them to.
