Canadian Economy Grew by 0.1% in October; Early Estimate Forecasts November Unchanged

The Canadian economy grew slightly in October with the latest reading on real gross domestic product coming in higher than expected. Statistics Canada said that the economy edged up 0.1%, outperforming its preliminary estimate that real GDP would remain unchanged for the month.

Growth in services-producing industries, led by gains in the public sector, wholesale and client-facing sectors, was partially offset by a decline in goods-producing industries, the federal agency said. Overall, output grew in 11 of 20 industrial sectors in October.

Building material and garden equipment and supplies dealers sales were up slightly 0.3% from September 2022 to October 2022 and up 5.9% year over year from October 2021 to October 2022.

Air transportation rose 5.5% in October to the highest level of activity since February 2020’s pre-COVID-19 pandemic level. Still, despite nine months of uninterrupted gains, Statistics Canada said air transportation’s activity level in October was about 34% below pre-pandemic levels.

Performing arts, spectator sports and heritage institutions industries grew by 4.7% amid more Toronto Blue Jays games than usual in October and a late start to the NHL pre-season.

Activity in food services and drinking places increased by 2.1% in October, offsetting a 1.6% decline in accommodation services that month.

The cool down in the goods-producing industries in October was led by a decrease in mining, quarrying, and oil and gas extraction and weakening in the manufacturing sector. All metal ore mining industries decreased, with the largest drop posted in copper, nickel, lead and zinc ore mining, down 4.8%, followed by gold and silver ore mining down 2.1%.

The initial estimate for November indicates real GDP was essentially unchanged for that month, but the agency cautioned the estimate would be updated.

October’s 0.1% growth followed September’s upwardly revised uptick in real GDP of 0.2%.

“This deceleration of growth is aligned with our view that the lagged effects of interest rate hikes and still high inflation is causing Canadians to gradually tighten their purse strings,” James Orlando, director and senior economist with TD Economics, said in a commentary. “Though there will be a lot of data coming out between now and the Bank of Canada’s next policy decision in late January, we think the bank has another hike left in store,” he said. “That would bring the policy rate to a very restrictive 4.5%.”

Indeed, the consensus among economists seems to be that economic growth in the coming months will largely hinge on the ongoing affect of rate hikes. “The Canadian economy has been holding up relatively well overall heading into the end of 2022, largely because the service sector is now carrying the weight,” Robert Kavcic, senior economist with BMO Capital Markets, said in a client note. “But the real question will be how things shake out during the first half of [2023], when aggressive Bank of Canada rate hikes start to more fully work their way through the system.”

Source: Globe and Mail
Source: The Star
Source: Statistics Canada

Retail Spending in Canada Shows Signs of Slowdown Amid Higher Inflation, Interest Rates

Retail spending in Canada showed early signs of a slowdown just as the holiday shopping season ramped up this fall, according to new figures from Statistics Canada. Preliminary numbers for November suggest a pullback in retail sales, the federal agency said.

The reading came as higher prices for basics such as gas and food helped boost retail sales 1.4% to $62.0-billion in October. However, overall retail spending was unchanged in volume terms for the month.

The data points to “a continuation of the stagnant trend that has persisted throughout this year,” CIBC Capital Markets senior economist Andrew Grantham said in a client note.

Statistics Canada’s early figures for November indicated a weakening of spending on goods – despite Black Friday sales sweeping stores at the end of the month. The agency’s preliminary estimate pointed to a 0.5% drop in retail sales in November, but cautioned the figure would be revised.

The numbers suggest goods spending “is going nowhere fast, with inflation and higher interest rates denting households’ desire and ability to increase spending volumes,” Mr. Grantham said.

While spending on services is expected to be a small bright spot in the last quarter of 2022, even that could fade in the new year, he added. “As we move into 2023 and higher interest rates start to impact a greater proportion of households, even services spending could begin to struggle,” Mr. Grantham said.

For October, higher prices boosted sales at gasoline stations by 6.8%, but gas station sales in volume terms fell 3.3%. Sales at food and beverage stores rose 2.2%, led higher by supermarkets and other grocery stores, which gained 2.5%.

Core retail sales in October – which exclude gasoline stations and motor vehicle and parts dealers – rose 0.9%.

Meanwhile, sales on more discretionary items appeared to slow. Sales at furniture and home furnishings stores dropped 1% in October compared with September. Electronics and appliance stores recorded a 0.9% decline in sales, clothing and clothing accessories stores saw sales fall 0.6% and sales at sporting goods, hobby, book and music stores were down 0.5%, Statistics Canada said.

Source: Globe and Mail
Source: The Star

Canada’s Inflation Rate Fell to 6.8% in November as Lower Gas Prices Offset Higher Food, Rent Costs

Canada’s inflation rate eased slightly in November but there were signs that underlying price pressures in the economy remain strong, increasing the odds that the Bank of Canada moves ahead with another interest-rate increase in January.

The Consumer Price Index rose 6.8% compared with 2021, as lower prices at the gas pump offset an acceleration in grocery prices and rent costs, Statistics Canada reported That’s down from 6.9% in October, although slightly ahead of economist expectations of 6.7%.

The rate of inflation has trended down since peaking near a four-decade high of 8.1% in June. But key measures of core inflation, which strip out volatile food and gasoline prices, continued to rise in November. That suggests the economy is still running hot in the face of multiple interest-rate hikes, and makes it more likely that the Bank of Canada will raise rates at least one more time next month.

“Turning the temperature down on inflation is proving to be an achingly slow process, and we suspect this may be a theme for 2023,” Bank of Montreal chief economist Doug Porter said in a note to clients.

“While lower pump prices will help chop next month’s rate, the fact that many measures of core inflation are still nudging higher is a clear warning sign of persistent underlying pressures,” Mr. Porter said. “We are leaning to the view that the Bank of Canada hikes rates one more time in January to 4.5%, and this firm report does nothing to doubt that call.”

Financial markets are now pricing in a roughly 60% chance that the central bank will announce another quarter-point rate hike in January.

Higher interest rates make it more expensive for households and businesses to borrow money, with the goal of lowering spending throughout the economy and slowing the pace of price increases. However, interest-rate changes work with a lag – often 18 to 24 months – making it difficult for the central bank to assess the impact of its policies in real time. That creates the risk that the bank will overtighten monetary policy and do unnecessary damage to the economy.

There are signs that inflation is trending in the right direction. On a monthly basis, the CPI rose 0.1% compared with a 0.7% gain in October.

Canadians got a break at the gas pump in November, aided by the reopening of several oil refineries in the Western United States, Statscan said. On a monthly basis, gas prices were down 3.6% in November, after a 9.2% jump in October.

Since peaking in June in the wake of Russia’s invasion of Ukraine, falling global oil prices have helped drag down inflation in Canada. That said, the price of gasoline was still 13.7% higher in November than in 2021.

There was little relief at the grocery store in November, where prices were up 11.4% compared 2021 – a bigger annual jump than in October. Food price inflation has proved tough to tackle. Bank of Canada deputy governor Sharon Kozicki noted in a speech earlier in December that food prices “have continued to increase despite most agricultural commodity prices being well below their pandemic highs.”

Canadians also paid more for shelter in November. Homeownership expenses have marched higher as the Bank of Canada has raised interest rates and an increasing number of homeowners have renewed their mortgages. Mortgage interest costs were up 14.5% in November compared with 2021, the largest increase since 1983.

Meanwhile, rental prices rose by 5.9% year over year, compared with a 4.7% increase in October, with the biggest jumps seen in Prince Edward Island, British Columbia, Quebec and Ontario.

Statscan noted that higher interest rates may be pushing up rental prices, as homeownership has become less affordable and more people are choosing to rent. “The fact that rent is going up, that’s probably a reflection of interest rates, because landlords have to account for those costs as well,” Arlene Kish, director of Canadian economics at S&P Global Market Intelligence, said in an interview. “To me the bigger concern is the fact that services inflation is rising at a steady rate. That probably is reflecting the increase in wages. We’ve seen wage inflation hitting 5.6% year over year for the past two months,” she said.

The Bank of Canada has said that it is paying close attention to wage growth and labour-market tightness as increasingly important drivers of inflation. While wages have not kept pace with rising prices, labour costs are adding to inflation as companies compete for scarce workers and pass higher labour costs on to their customers.

“The tightness in the labour market is a symptom of the general imbalance between demand and supply that is fuelling inflation and hurting all Canadians,” Bank of Canada Governor Tiff Macklem said in a speech in November.

The bank expects inflation to slow in the coming quarters as the economy stalls, unemployment increases, and higher interest rates bite into consumer spending. It expects inflation to be around 3% by the end of 2023 and return to the bank’s 2% target by the end of 2024.

Source: Globe and Mail
Source: The Star