Canada: slower growth sustained by domestic demand - Wells Fargo

A spate of indicators released today showed continued strength in Canadian domestic demand, improved business activity and a dip in the unemployment rate to a 9-year low, noted analysts from Wells Fargo. 

Key Quotes: 

“Real GDP growth in Canada came in at an annualized pace of 1.7 percent in the third quarter. In each of the first two quarters of the year, Canada boasted the fastest growth of any G7 economy, so this is clearly a slowing in the growth rate. That said, the consensus had anticipated an even bigger
slowdown, so today’s report is a bit better than expected.”

“Inventories increased for the fifth time in the past five quarters. In fact, stockpiles have been growing in double digits on a percentage basis in each quarter this year. As a result, inventories added another 1.1 percentage points to the overall growth rate.”

“We are concerned that a reversion to the trend-pace of inventory investment will eventually result in a drag on GDP. A mere slowing in the pace of inventory investment translates into a drag on growth in GDP accounting.”

“Consumer spending continued to expand just as it has in every period since the second quarter of 2009. We have been cautioning in recent quarters that household debt levels in Canada are getting worryingly high.”

“So if all these measures of domestic demand were positive, where was the weakness? In a word: trade. A steep decline in exports and little change in imports resulted in a 3.4 percentage point drag from net exports.”

“In separate reports also released this morning, we learned that Canadian jobs increased 79.5K and the unemployment rate fell to 5.9 percent, a nine year low, and the Markit Canada Manufacturing PMI climbed to 54.4. The Canadian dollar strengthened on this morning’s news, but we still expect the Bank of Canada to remain on hold at its meeting on Wednesday of next week.”