Canadian economy contracts 0.1 pct sequentially in August

Canada’s economic growth shrank sequentially in August. The economy contracted 0.1 percent, as compared with consensus expectations of a rise of 0.1 percent. The declines were fairly concentrated, as 12 of 20 major industries expanded during the month.

The goods sector contracted 0.7 percent with all major sectors reporting a contraction in output, holding things back again in August. Manufacturing recorded the biggest decline, with chemical manufacturing especially weak, reflecting both plant maintenance and weaker export demand. Elsewhere, mining, quarrying and oil and gas saw declining output for the third month.

This was largely linked to declines in convention oil and gas extraction resulting from maintenance shutdowns in Newfoundland and Labrador, noted TD Economics in a research report. On the contrary, the stalwart service side of the economy saw a 17th consecutive month of growth.

Given the number of shutdowns in the goods producing side of the economy leading to a modest contraction, third quarter growth is now tracking around 1.9 percent, consistent with the Bank of Canada’s forecast in last week’s Monetary Policy Report.

With much of the third quarter softness seemingly down to temporary factors, and growth still tracking above potential, there is no reason for Canada to worry, said TD Economics. Although there continue to be some wildcards, it is possible that output will come back to life in months ahead, especially given still encouraging signs from labor and housing markets.

“For the Bank of Canada, as encouraging as it will likely be to see their near-term outlook confirmed, "data dependency" likely implies that they will want ongoing confirmation of their expectations, particularly the expected tick-up in growth in the fourth quarter”, added TD Economics.

At 17:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was bearish at -86.4905, while the FxWirePro's Hourly Strength Index of US Dollar was bullish at 86.1384. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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