The last full trading week of 2019 was generally negative for Canada in terms of economic data. Except for November CPI, which was in line with market expectations, the data released in the past few days suggest a somewhat more pronounced end-of-year slowdown.
Manufacturing Sales: -0.7% (Consensus: 0.0%)
The decline was mainly driven by sales of transportation equipment (-3.1%), which reflected lower activity at several plants impacted by the United Auto Workers strike in the United States. Therefore, transport sales could rebound next month as the strike ended on Oct. 25. Altogether, durable goods shipments decreased by 2.4% in October. On the positive side, non-durable goods shipments improved by 1.3% for the month, indicating that the demand for these products is stabilizing after a large decline in the summer of 2019.
Wholesale: -1.1% (Consensus: -0.1%)
The machinery, equipment and supplies subsector contributed the most to the decrease. The second largest drop was in the miscellaneous subsector as a result of lower sales in the agricultural supplies industries. This was due to weak national and international demand. It is also worth noting that inventories declined for a third consecutive month.
Retail Sales: -1.2% (Consensus: +0.5%)
The October decline was the largest since November 2018. A total of eight of 11 sub-sectors registered a loss. The decline was primarily attributable to lower sales at motor vehicle (-3.2%) and parts dealers and at building material and garden equipment and supplies dealers (-3.1%). Granted, in the last few years, retail sales have been volatile in October and November, implying that some seasonal factors could have played a role in this year’s October decline. The report still suggests that real household consumption growth could come close to a halt in 2019 Q4. Wage growth can be at its highest level in a decade, but consumer confidence has waned since September.
A Re-Assessment of the Situation
We forecast no growth in monthly GDP for October (0.0% m/m; to be released next Monday, Dec. 23). We also revised down our 2019 Q4 GDP forecast from 1.4% to 0.8%. Because of that end-of-year weakness, our 2020 growth forecast is now at 1.6%, a notch below the Bank of Canada's latest MPR forecast (1.7%). As mentioned above, some aspects of that slowdown could be temporary. However, a more pronounced deceleration in the Canadian domestic economy is what needs to be kept on investors’ radar. A re-assessment of the situation might be in the cards for BoC officials going into 2020.