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Canada’s GDP declined 0.2% in February but better news from elsewhere

04/30/2012 by Alex Carrick, RCD Canadian Chief Economist

Canada’s industry-based gross domestic product (GDP) declined 0.2% in February, according to Statistics Canada.

The month-to-month change in industry-based GDP has moved in a range between -0.2% and +0.2% in five of the past six months. The one exception occurred in December of last year when the percentage increase was 0.5%.

Thanks to December, the three-month moving average of GDP change was still positive (+0.1%) in the latest period.

But output growth could hardly be called vivacious at this time. Anemic would be a better word.

The year-over-year change in industry-based GDP was +1.6% in February, down from +1.7% in January.

Goods-producing industries (-1.0% month to month) were the cause of the slowdown, while service-producing industries (+0.1%) held steady.

The main declining sectors were utilities (-1.9% month to month) and mining and oil and gas extraction (-1.6%). Utilities tied to electric power and natural gas demand were affected by the unseasonably warm weather in much of Canada at the start of this year.

The mining and oil and gas extraction sector was further impacted by temporary and often unplanned closures at some facilities.

Potash mining (-19%) is mentioned specifically in the Statistics Canada report. Weak world demand forced production cutbacks at operations in Saskatchewan.

Copper, nickel, lead and zinc mining was also lower as some Ontario underground sites were “closed for safety issues”.

Strong residential markets helped sustain both construction (+0.5% month to month) and finance, insurance and real estate (+0.4%). Besides residential mortgages, the latter was also bolstered by heightened activity in mutual funds, personal loans and securities trading.

Wholesale trade had a good month (+1.5% period to period) while retail trade pulled back (-0.4%). 

Another indication of how Canada’s growth has been wavering can be found in the Industrial Product Price Index (IPPI) and Raw Materials Price Index (RMPI) series.

In March, the IPPI was +0.2% versus February, but after almost a year of relatively small jogs up and down, it was ahead only slightly compared with April 2011.

The RMPI in March was -1.6%. This series has been trending gradually downwards over the past 12 months.

The RMPI includes many of the commodities that Canada sells to the rest of the world.

Therefore, while a lower RMPI may be helpful in keeping costs down for manufacturers, it is a problem for producers in our resource sector who are looking for higher prices to justify investment spending on expansion plans. 

Canada’s growth prospects depend on what is happening in the rest of the world. The United States offers hope on that score.

Consumer spending in the U.S. – which accounts for 70% of that nation’s GDP – has risen strongly throughout 2012 so far. January’s gain of 0.5% was followed by +0.9% in February and +0.3% in March.

The February figure of +0.9% (recently revised from +0.8% as originally reported) for personal expenditures was the fastest rate of advance since August 2009, at the end of the recession.

A concern for the U.S. economy, however, is that manufacturing is not stepping forward with as lively a step as earlier in the recovery. The latest indication of a hobbled stride has come from the Chicago Purchasing Managers’ Index.

While it stayed above 50%, indicating expansion in both the local economy and in what may be the most important manufacturing hub in the country, it did decline from the month before. The figure dropped from 62.2% in March to 56.2% in April.

U.S. personal disposable incomes (i.e., earnings after taxes) in March rose 0.4% in current dollar terms, which was an improvement over February (+0.2%) and January (+0.1%).

The better U.S. labor market of late – 2.5 million net new jobs since January 2011 – is a cure-all for many other aspects of the economy that may be ailing. 

It’s not the U.S. that’s presently holding back the world economy. Europe’s ongoing debt problems are the most significant source of worry.

The U.K. has slipped into a double-dip recession. GDP change in that nation was slightly negative in both the final quarter of last year and the first quarter of 2012.

And now politics has reared up and is contributing an element of uncertainty. In much of the Euro area, “the man in the street” is being asked to accept both government and personal austerity as the price to be paid for past extravagance.

What’s often forgotten, though, is how that same “everyman” does have a say in what happens through casting a ballot. 

Polls for the upcoming final round of voting in France’s presidential election indicate there may be a change at the top. Nicolas Sarkozy’s foe, Francois Hollande, has said that France’s previously agreed-to participation in Europe’s fiscal union will be re-examined if he forms the government.

In the meantime, the region’s largest economy, Germany, is continuing to surprise with its relative prosperity. The unemployment rate is at a two-decade low. Retail sales have been surging while inflation has been moderating.

German business confidence is at a nine-month high and unions are going after some of the largest wage increases since the late 1990s.

This is the exact opposite of the experience almost everywhere else on the continent.

For a final comment, let’s return to Canada for a moment. If more numbers like February’s 0.2% decline in GDP are forthcoming, there will be some policy implications.

For example, the rate hike that the Bank of Canada has been hinting might occur before the end of this year may need to be postponed.  


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