Canada’s Economy Slows By Two-Thirds, But There's Good News Beneath The Surface

MONTREAL ― It’s not great news, but it’s not as bad as some had expected.

Canada’s economy slowed down in the third quarter of this year, growing at an annual pace of 1.3 per cent, Statistics Canada (StatCan) said Friday. That’s down from a solid 3.5-per-cent pace the quarter before that ― though that number itself was revised down from an earlier estimate of 3.7 per cent.

That’s roughly in line with what the experts had been calling for, but with some pleasant surprises. Business investment ― which drives job growth in the private sector ― jumped by 10.7 per cent at an annual pace, suggesting good times in the job market ahead.

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For the time being, that job boom seems to have fizzled. StatCan’s closely-watched labour force survey showed a jump of 54,000 jobs in September, but another measure the agency runs, a survey of employers, found a loss of 27,600 jobs that month.

And while the agency’s labour force survey reported a small loss of around 2,000 jobs in October, ADP Canada’s payroll survey suggested the country lost more than 22,000 jobs that month.

Canadians’ finances may be in slightly better shape than previously thought. StatCan revised its numbers for the household savings rate ― the percentage of money left over every month after expenses ― and found it’s 3.2 per cent, up from 2 per cent before the revision.

That suggests “Canadians have been stashing away a bit more money for a rainy day than Statistics Canada was previously estimating,” CIBC chief economist Avery Shenfeld wrote in a client note Friday.

But that’s still much lower than the savings rate in many developed countries, including the U.S., where it’s around 8 per cent.

The country continues to rely heavily on the housing market for growth, with residential structure investment (i.e. home construction) jumping 13.3 per cent, the fastest increase in seven years.

The strength in the housing market is why some economists say the Bank of Canada will stay on the sidelines and not cut interest rates as the U.S. Federal Reserve has.

“We think the Bank of Canada is unlikely to follow through on its recent hints that an ‘insurance’ rate cut might be needed,” Capital Economics said in a note Friday morning.

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Looking ahead, the economy is likely to slow further before seeing any improvement, and some temporary factors this month won’t help. The strikes at General Motors and CN Rail, as well as the shutdown of the Keystone pipeline after a spill will drag economic growth down, analysts predicted.

But the surprise growth in investment in the third quarter has many optimistic the slowdown will be short-lived.

“The economy appears to be a bit more resilient than previously thought,” TD Bank senior economist Brian DePratto wrote.

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