The Canadian economy expanded by 0.1% month/month (m/m) in November, matching Statistics Canada’s flash estimate. Meanwhile, December’s flash estimate showed no change.
November’s increase in activity was fairly broad, with output expanding in 14 of the 20 industries. The service-producing sector rose by 0.3%, while the goods-producing sector declined 0.1%.
The gain was led by the transportation and warehousing sector, as the lifting of COVID-19 border restrictions resulted in a boost to air transportation (+4.6%). This passed through to the “accommodation services subsector (+2.5%) which also expanded in November, driven by an increase in traveller accommodation.” The finance and insurance sector (+0.5%) also saw a gain on greater trading revenues and higher interest rates.
Once again there was weakness in residential construction (-1.8%). According to StatCan, “all types of residential activity fell in November, with new construction of single detached homes and home alterations and improvement leading the contraction.” Retail trade also declined (-0.6%), with weakness seen in “food and beverages stores (-1.8%), building material and garden equipment and supplies dealers (-2.9%), as well as general merchandise stores (-1.6%).”
Key Implications
The Canadian economy continues to show its resilience. With today’s print and the flash estimate for December, GDP is likely going to clock in at around 1.6% (quarterly annualized). This is right around Canada’s long-term trend pace, though will mark a step down from the 3% trend of the prior three quarters. This deceleration was always in the cards given the historic Bank of Canada tightening cycle. Looking at the industry sector breakdown, we can see that the interest rate sensitive sectors are feeling the brunt of this, especially in the construction and retail sectors.
This report isn’t likely to cause the BoC to have any second thoughts regarding its recent pause. The economy hasn’t yet absorbed the impact of past rate hikes. Though we are seeing the beginning of this, there is more to come, with GDP and employment growth set to stall in the coming months. Even though today’s growth numbers are holding up well, the BoC can feel comfortable keeping its policy on cruise control a little while longer.
