Canadian economy goes into reverse in July
September 30, 2010
OTTAWA - The Canadian economy shrank in July for the first time in almost a year as tepid demand from a sluggish United States put the brakes on manufacturing and consumers kept a tight grip on their purse strings.
Real gross domestic product edged down 0.1 per cent, the first monthly decline since August 2009, Statistics Canada reported Thursday. Manufacturing, retail and wholesale trade, construction and forestry all posted decreases.
The reading appeared to reinforce what many economists have been saying in recent weeks: the Canadian economy is continuing to grow, but at a plodding pace.
“Consistent with faltering domestic demand and weak U.S. demand, manufacturing shipments fell the hardest in the month,” TD Bank economist Diana Petramala wrote in a note to clients.
“The weakness was widespread among the manufacturing industry with some positive offset from motor vehicle production and food and beverage manufacturing.”
Manufacturing decreased 0.7 per cent in July, with 11 of the 21 major groups retreating. Construction declined 0.5 per cent, forestry and logging receded by 4.6 after a double-digit increase in June and utilities declined 0.4 per cent.
The home resale market fell significantly for a third straight month, retail trade fell 0.5 per cent and wholesale trade edged down 0.2. At least part of the weakness in consumer discretionary spending was blamed on the effect of new harmonized sales tax regimes in three provinces.
“It’s not all that surprising that Canadian economic growth has started to unwind given the introduction of the harmonized sales tax (HST) in Ontario and B.C. and as the positive impact from stimulus spending is beginning to wane,” Petramala noted.
However, the dip was likely a temporary one and there were some signs of strength in the numbers, she said.
“The drop in residential construction was partially offset by a 0.3 per cent gain in non-residential construction, while the decline in retail trade was slightly tempered by modest gains in areas related to discretionary spending like clothing and footwear and general merchandise stores.”
Increases were recorded in the mining sector and, to a lesser extent, in some financial industries and the public sector. The mining sector rose 1.1 per cent in July, while the finance and insurance sector grew 0.1.
“If the respectable 35,000 job gain in August is any indication, positive economic growth should resume in August — albeit at a tepid pace.”
The Canadian Press
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