Is the Canadian Economy Sputtering?
Over the last couple of weeks Statistics Canada has released data that shows the Canadian economy is on fire. In the second quarter, the Canadian economy expanded at 3.7%. In August meanwhile, the Canadian economy created an eyewatering 81,000 jobs. Bay Street cheered, sending stocks, and the TSX to record levels and the Canadian dollar rallied. Unfortunately, those rosy numbers are not quite as good as they appear and in fact, the data suggests the Canadian economy is sputtering.
First, on August 30, Statistics Canada reported that Canadian gross domestic product (GDP) expanded 3.7% in the second quarter. This topped the Bank of Canada’s projection of second quarter GDP growth of 2.3%.1
Second quarter Canadian GDP growth was fuelled, in part, by a one percent drop in import volumes and a rebound in exports—the fastest quarterly increase in five years. But there are signs that this streak cannot be sustained, especially in light of the weakening global economy.
Despite strong gains in Canadian wages, household spending ground to a virtual halt, slowing to 1.0% in the second quarter. That’s a big drop from the 0.7% increase in the first quarter. Business investment meanwhile contracted by the most in more than two years, which resulted in domestic demand falling in the second quarter.
Taken together, the data suggests Canadians and businesses are growing more and more concerned about the state of the global economy. What’s more, if you take out the public sector and business-sector activity, GDP advanced just 1.3%. Population growth meanwhile is running at an annual rate of 1.5%; this suggests that real per capital GDP is basically flat to slightly negative.
On September 6, Statistics Canada announced that the Canadian economy added an astounding 81,100 jobs.2 Again, Bay Street cheered. And again, the underlying data doesn’t support the enthusiasm.
Most of those jobs, 57,700 (70.5%), were part time, services jobs, picked up young people in the 15 to 24 year age category. And the vast majority of those jobs came from Ontario (58,000, all part-time) and Quebec (20,000). There was little-to-no jobs growth in the rest of the country.
Taken together, it’s clear the Canadian economy is not doing that well. This means the Bank of Canada could end up following 30+ central banks around the world, including the U.S. Federal Reserve, by cutting its key lending rate.
Since all that data has come out, the economic outlook has become even gloomier. The U.S/China trade war has ramped up and there are more signs that the global economy is teetering on a recession.
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- “Gross domestic product, income and expenditure, second quarter 2019,” Statistics Canada, August 30, 2019; https://www150.statcan.gc.ca/n1/daily-quotidien/190830/dq190830a-eng.htm.
- “Labour Force Survey, August 2019,” Statistics Canada, September 6, 2019; https://www150.statcan.gc.ca/n1/daily-quotidien/190906/dq190906a-eng.htm.
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