Canada’s Economy Shrinks in October From Auto Strike Spillover

(Bloomberg) -- (Bloomberg) - Canada’s economy contracted in October for the first time in eight months, as the United Auto Workers strike in the U.S. weighed on plant production.

Gross domestic output shrank 0.1% from the prior month, missing economist estimates for a flat reading, Statistics Canada reported Monday. That followed a 0.1% expansion in the prior month.

Goods-producing industries dragged on October’s print, falling 0.5% on the month. Within that sector, manufacturing was down 1.4%, the fourth decline in five months.

Overall, 13 of 20 sectors posted increases, suggesting the weakness was largely isolated to a few key industries.

The services-producing industries were little changed with strength in real estate and transportation and warehousing helping to offset declines in retail and wholesale trade.

Resilience in the services sector “is reassuring because it’s a reliable source of support helping the economy offset a struggling goods sector amid external shocks -- the weak global economy and GM strike stateside,” Krishen Rangasamy, senior economist at National Bank Financial in Montreal, wrote in a note to clients. NBF expects fourth-quarter GDP growth to decelerate further to around 1% annualized, from 1.3% in the third quarter.

The Canadian currency was slightly weaker after the report, declining 0.1% to C$1.3167 against the U.S. dollar at 10:34 a.m. Toronto time.

Key Insights

• Although the slowdown was expected following disappointing reports for the month across wholesale, factory and retail sales, October’s GDP result will make it harder for the Canadian economy to reach the Bank of Canada’s 4Q forecast of 1.3% annualized
• Broad-based declines in manufacturing were the largest downside contributor with a 2.5% contraction in the transportation equipment subsector; that’s due in part to the auto strike which caused some Canadian plants and parts producers to scale back

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• Other weak points include retail trade down 1.1% in October, the largest decline since March 2016 and wholesale trade, down 1% on the month
• Spots of strength include real estate, the largest upside contributor, with agents and brokers up 0.7% on gains in Vancouver and Ottawa. Transportation and warehousing grew 0.6% in October with eight of the nine subsectors up; The professional services sector expanded 0.3% on the month led by growth in computer systems design and related services
• On an annual basis, Canada’s economy grew 1.2% in October, missing forecasts for 1.4%, and down from a revised 1.5% in September

--With assistance from Erik Hertzberg.

To contact the reporter on this story: Shelly Hagan in Ottawa at shagan9@bloomberg.net

To contact the editors responsible for this story: Theophilos Argitis at targitis@bloomberg.net, Chris Fournier

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