November 14, 2011
The notion of a double-dip recession is shelved for now
Chief Economist, CanaData
Canada’s “real” gross domestic product – i.e., GDP after deflation by a price index – rose 0.3% in August versus July, according to Statistics Canada.
In July, the month-to-month gain had been 0.4%.
The significantly positive changes in the two latest months are important because they short circuit any concern that we might have slipped back into recession.
Such a notion was inevitable after the reading on second-quarter growth was decidedly downbeat. Q2 GDP versus Q1 annualized was -0.4%.
In the individual months of Q2, the results for GDP change were 0.0% in April (period versus previous period), -0.3% in May and +0.2% in June.
Uncertainty surrounding the impacts of the debt problems in Europe, the rating downgrade in the U.S. and monetary tightening in China caused speculation over the possibility of a double-dip recession.
The “double-dip” scenario postulates a second economic downturn following quickly on the heels of the October 2008 to June 2009 recession.
Such a danger seems to have been forestalled, at least for the moment, although pockets of weakness in the economy do remain.
The energy sector accounted for the entire monthly GDP advance in August.
Excluding energy, there would have been no change – i.e., a figure of 0.0%.
It seems clear that the Q3 GDP growth number won’t be negative. Therefore, there has been no second recession of late since the technical definition would require two consecutive quarters of negative GDP performance.
The monthly GDP numbers are industry-based. Services-producing industries, at 71%, make up most of the total. Goods-producing industries account for the remaining 29%.
Those percentages are interesting because, when it comes to employment, services are an even bigger portion of the whole.
They provide 78% of all jobs in the country. Manufacturing and construction are the next two largest sources of employment at 10% and 7% respectively.
In the latest month-to-month GDP numbers, output in the goods-producing sector rose 0.9% while services stayed flat.
Mining, oil and gas extraction (+3.3% month to month) pulled the entire goods sector in its wake.
The finance, insurance and real estate category (+0.6%) was the only positive standout in services.
Dragging the sector down were wholesale trade (-1.4%), arts, entertainment and recreation (also -1.4%) and accommodation and food services (-0.9%).
On a year-over-year basis, good-producing industries (+2.9%) have grown faster – but not inordinately so - than service-producing industries (+2.2%).
The former has been led by utilities (+5.8%) and mining and oil and gas extraction (+5.0%).
Out front in services have been wholesale trade (+4.2%) and transportation and warehousing (+3.3%).
Corresponding with better economic growth of late, the Industrial Product Price Index (IPPI) in September rose 0.4% versus August and the Raw Materials Price Index (RMPI) jumped 1.4%.
The former was led mainly by motor vehicles and the latter by crude oil, according to Statistics Canada.
The fall in value of the Canadian dollar versus the U.S. greenback accounted for some of the price rise in the auto sector.
The IPPI for September was +5.3% versus the same month a year ago and the RMPI +15.2%.
The RMPI is often quite volatile and can swing wildly with commodity prices.
The IPPI has reached its highest level since August 2008. The RMPI remains 9.9% below its most recent peak of April 2011.
For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has an economics blog. His lifestyle blog is at www.alexcarrick.com
(based on seasonally adjusted constant dollars)
Chart: Reed Construction Data - CanaData.
