Economic Data Shows Canadian Economy Is Slowing Faster Than Thought

Despite the U.S.-China trade war, the Canadian economy had been reporting decent, but not robust, economic growth. All that has changed though. For the first time in 2019, economic data is rolling in that suggests the Canadian economy is slowing down faster than what analysts forecasted. This does not bode well for the Canadian economy or Canadian stocks as we head into 2020.

A popular economic indicator from Citigroup Inc. (NYSE:C) suggests Canadian economic growth is slowing faster than expected. The gauge, which rises when data is better than forecast and falls when economic data comes in below expectations, recently fell to zero. This is the first time this has happened since December 2018.¹

In addition to this negative economic sentiment, the Canadian dollar, which had been one of the strongest currencies this year, is now one of the worst currencies when compared to the Group of 10, which includes Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States.

What Economic Data Shows the Canadian Economy Is Slowing?

Some of the more telling economic data supporting Citigroup’s suggestion that the Canadian economy is slowing down includes October’s job data, which shows the Canadian economy unexpectedly lost 1,800 jobs. Analysts were expecting an October gain of 15,900 jobs.²

The value of Canadian building permits fell 6.5% in September to $8.4 billion, weighed down by the residential sector. Economists had predicted a decline of just 2.0%. The value of residential building permits tumbled 10.7% to $5.2 billion.³

Meanwhile, manufacturing sales slipped 0.2% in September to $57.4 billion, with headwinds coming from petroleum, coal, and vehicle parts. The September stall comes after a 0.8% increase in August. Manufacturing sales were down in 10 of 21 industries, which represents 62.2% of Canada’s entire manufacturing sector.⁴

None of this weak economic data should be a total surprise though. In the first quarter, Canada’s gross domestic product (GDP) expanded at just 0.4%—the worst back-to-back quarter of growth in four years. This weak trend continues. In July Canada’s gross domestic product (GDP) was flat and in August it grew a princely 0.1%. For all of 2019, Canadian GDP is projected to fall to just 1.5%, half of what it was in 2018.

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Sources:

1. Hagan, S. “Canada’s resilient economy just got a fresh warning signal,” Financial Post, November 20, 2019; https://business.financialpost.com/news/economy/canadas-resilient-economy-just-got-a-fresh-warning-signal.
2. Johnson, K. “Canada unexpectedly loses 1,800 jobs, widely missing forecasts,” Financial Post, November 8, 2019; https://business.financialpost.com/news/economy/canada-loses-1800-jobs-in-october-unemployment-rate-holds-steady-at-5-5.
3. “Building permits, by type of structure and type of work,” Statistics Canada, November 8, 2019; https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=3410006601.
4. “Manufacturing sales fell 0.2% in September: Statistics Canada,” BNNBloomberg, November 19, 2019; https://www.bnnbloomberg.ca/manufacturing-sales-fell-0-2-in-september-statistics-canada-1.1350205.