August GDP Was Flat, and the Rest of the Year Looks That Way, Too

November 1, 2023 - Statistics Canada released the August GDP figures yesterday. As expected, it came in essentially unchanged from July (which was unchanged from June). Combined with StatsCan's forecast of 0% growth in September and an overall 0% growth for Q3, it appears that, in spite of significant interest rate hikes since March of 2022, we may indeed be headed for a soft landing - reduced inflation without a long or deep recession.

In August, only 8 of 20 industrial sectors showed an increase in output, led by wholesale trade (+2.3%); mining, quarrying, and oil and gas extraction (+1.2%); transportation and warehousing (+0.8%); and finance and insurance (+0.4%). Tellingly, accommodation and food services fell by 1.8%, and retail trade contracted by 0.7%, indicating a softening in final demand. Also, the increases shown by some sectors were the result of unusual factors:

• Mining, quarrying, and oil and gas extraction reflected a continuing recovery from May's forest fires in Alberta for oil and gas extraction and from maintenance activity in July for mining and quarrying. 
• Air transportation grew by 3.7%, but this was a recovery from the many flight delays and cancellations in June and July. Water transportation's 4.2% growth is a bounce because of the strikes that shut BC ports in July. Rail transportation (+1.1%) reflected a resumption of intermodal carloadings after the ports strike.
• Finance and insurance increases were driven by general market volatility, which increased the amount of value and volume traded in financial markets.

Of interest to us, industrial construction also held steady during August.

Assuming there is no interest rate increase in December (which appears to be an increasingly safe assumption), we believe that Q4 will show relatively small change over Q3, so the Bank of Canada's 1.2% estimate of economic growth for the year also seems likely. Note that the Bank's last interest rate announcement (see below) forecast inflation continuing at aout 3.5% until mid-2024 and, although there was a hawkish tone to it, it read as if this was acceptable and wouldn't trigger further hikes in the policy interest rate. Thus, it is possible that we could escape the inflation-correction cycle without a recession (or perhaps with a shallow, short-lived one).