Canada’s Economic Momentum Runs Out of Steam

Canada’s Economy Stalls After Three Months of Growth

OTTAWA — Canada’s economic momentum hit a pause in July, with real gross domestic product essentially unchanged after three consecutive months of growth, raising fresh questions about the strength of the recovery heading into the second half of the year.

Statistics Canada reported that real GDP was flat in July, following increases in April, May and June. The June economy expanded 0.3%, marking its third straight monthly gain, while the second quarter as a whole recorded 0.8% growth.

The July slowdown was broad. Goods-producing industries were virtually unchanged, as gains in construction and utilities were offset by declines elsewhere. Services-producing industries were also essentially flat, with weakness in retail and wholesale trade countering growth in several other sectors.

Manufacturing and retail weigh on growth

Manufacturing was among the areas putting pressure on the economy. Earlier data showed manufacturing activity declining in July, while petroleum refinery output fell sharply. Mining, quarrying and oil and gas extraction also contracted for a second consecutive month. Reuters

Consumers also pulled back. Retail trade declined 1% in July, while wholesale trade fell 0.4%, according to Statistics Canada data reported by Reuters.

There were bright spots. Construction expanded 1.3% in July, extending its growth streak to four consecutive months. Utilities also increased, helping cushion declines in other parts of the goods-producing economy.

A stronger quarter, followed by a weaker start

The July figures arrive after a comparatively strong second quarter. Canada's real GDP increased 0.8% from April through June, helped by stronger exports, household spending and business investment. Exports rose 3.6% during the quarter — their fastest increase in more than three years — with passenger vehicles, energy products and industrial machinery among the contributors.

That momentum, however, has not carried cleanly into the third quarter.

The labour market also showed signs of cooling. Employment fell by 42,000 in August after rising by a cumulative 181,000 between April and July. The unemployment rate remained at 6.4%, while the employment rate edged down to 60.8%.

Inflation remains another pressure point. Consumer prices rose 3.0% year over year in August, unchanged from July. Excluding gasoline, prices were up 2.4%.

August offers a tentative lift

There is at least one reason not to read July's stagnation as the start of a prolonged contraction.

Statistics Canada's preliminary estimate suggests the economy grew 0.2% in August, supported by increases in mining and quarrying and retail trade, although oil and gas extraction declined. The estimate is preliminary and is scheduled to be replaced by official August GDP data on Oct. 30.

The mixed picture leaves Canada's economy in a delicate position: the country entered the third quarter with solid second-quarter growth behind it, but July's pause and August's softer preliminary increase suggest that underlying momentum remains uneven.

For households and businesses, the coming months will show whether the July slowdown was simply a temporary pause or an early indication that Canada's recent economic expansion is losing steam.