Statistics Canada reported Tuesday that mining, quarrying and oil and gas extraction shrank for the sixth month in a row.
Canada economy shrinks 0.1 per cent in February
Economists were expecting a flat result for the month, so the contraction came as an unwanted surprise. The weak showing means the economy has now shrunk in four of the past six months.
The surprise versus consensus showed up partially in mining, oil & gas, but after looking at the details that appears to have had nothing to do with oil production cuts, said Royce Mendes, senior economist at CIBC Capital Markets, in a research note.
On the upside, the utility sector grew — largely because unseasonably cold weather in Western Canada led to higher demand for electricity.
"February's chilly weather didn't just make your commute worse, it also took a bite out of economic activity," Toronto-Dominion Bank economist Brian DePratto said of the data.
Despite the cold, construction activity inched up for the second month in a row, following seven consecutive months of decline.
Mining, quarrying and oil and gas extraction fell for the sixth consecutive month and transports fell the most since 2011.
The data agency also "cautioned that the transportation/warehousing sector was distorted by cold and snow plus a train derailment in B.C that closed the key rail line through the Rockies at the beginning of the month,'" Scotiabank economist Derek Holt said "This sector could rebound next month."
DePratto calculates that with February's numbers factored in, the economy is on track to have grown at a 0.6 per cent pace in the first quarter of 2019. That's slightly higher than the Bank of Canada was forecasting last week, but still not enough to compel the central bank to deviate from its plans not to raise rates, DePratto said.
U.S. same-store sales — or sales at locations open at least a year, a key metric of a retailer's health — were up 4.5%, beating expectations. The company said it's also seeing gains as U.S. stores come back into service after renovations. McDonald's is modernizing its restaurants with digital ordering kiosks, table service and curbside pickup for mobile orders. This year, 2,000 U.S. restaurants will be renovated.
"Today's data only reinforce that the overnight rate looks set to stay at 1.75 per cent for some time to come."
The data, released Tuesday by the Labor Department, suggests that growth in workers' compensation has stalled in recent months. In the first quarter, wages and benefits increased 2.8% compared with a year earlier. That's down slightly from a 2.9% annual gain in the final quarter of 2018. Still, workers' compensation has picked up slowly. Five years ago, quarterly gains were closer to 0.4%.
The Canadian dollar was trading slightly higher before the news, before tumbling a little after the numbers came out. At midmorning, the loonie was changing hands at just over 74 cents US, basically flat on the day.
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Compensation rose more quickly in typically lower-paying occupations and industries than in higher-paying ones. For truckers and other transportation workers, it jumped 1.6%, and for retail workers it rose 1%. Managers' compensation rose just 0.5% and for professional workers, 0.4%. That is a sign employers are struggling particularly hard to find and keep lower-skilled workers.
4h ago Canadian economy shrinks with poor weather adding to oil woes Theophilos Argitis, Bloomberg News
Canadas economy returned to its sluggish ways in February, with a drop in output that will reinforce expectations of a slow start to the year.
Gross domestic product fell 0.1 per cent, taking back some of the 0.3 per cent gain in January in part due to poor weather, Statistics Canada said Tuesday from Ottawa. Economists were estimating output would be unchanged.
The February data are consistent with an economy that continues to grapple with a number of headwinds and may have barely grown in the first quarter of 2019, extending a slump that began at the end of last year.
The monthly numbers are in line with the Bank of Canadas pared back expectations for the quarter. Without any more growth in March, Canadas economy may have come to another near halt in the first three months of the year, as the central bank is now predicting. Policy makers expect the economy to pick up from the second quarter on.
Falling resource production was the main culprit in February, with the mining and oil and gas sector down 1.6 per cent — its sixth consecutive drop. While the oil and gas sector continued to show weakness, the big decline was in mining and quarrying outside of energy. That component fell 4.4 per cent, driven by reduced output of most types of metals.
A tough winter in much of the country also played a role in the contraction, adding to the economys woes. This was evident in a 1.6 per cent drop in transportation and warehousing sector, the largest one-month decline for the sector since June 2011. On the flip side, February was a great month for utilities, which saw output jump 1.5 per cent because of the cold.
About half of the sectors tracked by Statistics Canada actually posted gains, with increases also recorded by builders, retailers and wholesalers.
While conventional oil dropped, the situation in the oil sands seems to be stabilizing. That sector dropped just 0.1 per cent in February, after a 4.1 per cent drop a month earlier.
Manufacturing contracted 0.4 per cent, after a 2.1 per cent gain in January that was the largest in nearly to 15 years.