Canada’s Economy Edges Up in October, Points to a Flat November

The Canadian economy expanded by 0.1% month/month (m/m) in October, beating Statistics Canada’s flash estimate of no growth. The flash estimate for November points to 0.1% growth.

October’s increase in activity was mixed, with output expanding in 11 of 20 industries. The service-producing sector rose by 0.3%, while the goods-producing sector declined 0.7%

The gain was led by the public sector, wholesale and client-facing industries. The public sector (education) continues its heavy lifting, while “the arts, entertainment and recreation sector increased 2.2% in October, up for the ninth month in a row.” According to Statistics Canada, the Toronto Blue Jays’ playoff appearance skewed the results to the upside. Go Jays!

As expected, there was weakness in goods-producing industries, which “cooled down in October, after expanding in the previous four months. The October decline was led by a decrease in mining, quarrying, and oil and gas extraction and weakening in the manufacturing sector.”

Key Implications

Heading into today’s release we were expecting a slowdown from the above trend pace of growth witnessed over the first nine months of 2022. With the positive print today and the flash estimate for November, our tracking for the fourth quarter remains just above 1% annualized. This deceleration of growth is aligned with our view that the lagged effects of interest rate hikes and still high inflation is causing Canadians to gradually tighten their purse strings.

Though there will be a lot of data coming out between now and the Bank of Canada’s (BoC’s) next policy decision in late January, we think the Bank has another hike left in store. That would bring the policy rate to a very restrictive 4.5%. Financial markets would agree that the BoC isn’t done yet, with Canadian bond yields up 10 basis points this morning.