Canadian GDP Decreased in November

Real GDP decreased in November after being flat in October (top chart). Activity dropped in the goods producing sector (-0.6%) after decreasing 0.1% in the previous month. Mining & oil & gas extraction (-2.2%) experienced the largest decline within this sector while manufacturing was the top performer (+0.6%). Industrial production was down (0.8%) after dropping 0.1% onemonth earlier. Production in durable manufacturing experienced strong gains (+0.9%) while non-durable made also some progress (+0.1%). Energy production was down (-2.1%), following a 0.3% drop a month earlier. In the service sector activity was up for a seventh consecutive month (+0.1%). Accommodation and food services (+0.9%) and retail trade (+0.6%) posted the largest advanced while wholesale trade (-0.6%) and finance & insurance (-0.4%) lagged within this group.

OPINION: Canadian GDP surprised to the downside in November, falling 0.1%, well below consensus expectations of +0.2%. Those forecasts would have been roughly right if Mining & Oil & Gas extraction sector have been flat instead of contracting 2.2%, its worst showing in 6 months. Note that this volatile sector which explained most of the strong growth observed in Q3, will now harm economic activity in Q4. We are not particularly worried by this poor performance given that it is partially the result of maintenance shutdown and that global industrial production is showing strong resilience. A rebound is therefore expected in the coming months. One silver lining of this soft report is the strong performance of the struggling manufacturing sector, which is the best performer among goods producing sector for a second month in a row. As a result, this sector along with transportation and warehousing, its highly correlated acolyte, are among the best performing sectors in the Canadian economy over the last year. This solid performance is not enough to prevent a deceleration in economic growth in Q4 after a very hot third quarter. Canada is on track for growth close to 1.5% in the final quarter of 2011.