Economic growth resumes

OTTAWA — The Canadian economy has begun growing again, advancing by a modest 0.2 per cent in October after setbacks in two of the previous three months.

OTTAWA — The Canadian economy has begun growing again, advancing by a modest 0.2 per cent in October after setbacks in two of the previous three months.

But the less than anticipated advance, while welcome after September’s one-tenth of a point contraction, still leaves the Canadian economy sputtering as the year draws to a close.

“The direction is right, but this tracks below the Bank of Canada’s expectations,” said Derek Holt of Scotiabank.

Even at that, the headline flattered the details, he added. Except for a 2.4 per cent pickup in the resource sector, key sectors such as manufacturing, construction, agriculture, forestry and fishing, utilities and retail sales all declined.

The 0.6 per cent pullback in the factory sector was particularly disappointing given recent signals of revival.

Capital Economics analyst David Madani said the “fingerprints” of the strong dollar are all over the weak manufacturing and exports data, and with household debt at a record 148 per cent of disposable income, the consumer is in a poor position to pick up the slack.

“There are still reasons to be cautious regarding the outlook,” said David Madani, chief economist with Capital Economics.

“There are few convincing signs that the economic recovery is strong enough to generate good-quality jobs that would help spur labour income growth.”

October’s data sets the stage for muted two per cent growth in the fourth quarter, he estimated. Scotiabank is even more pessimistic at 1.8 per cent. Both are better than the third quarter’s limp one per cent, but half the expected growth rate in the United States.

A pickup in U.S. growth can’t happen fast enough for Canada, said Douglas Porter, deputy chief economist at BMO Capital Markets.

“For the expansion (in Canada) to move to the next level, we need the U.S. economy to kick into a higher gear. Thankfully, that looks to be precisely the case,” he said.

On Wednesday, the U.S. revised upwards its third-quarter growth a tick to 2.6 per cent, and on Thursday reported modest gains in consumer spending and incomes.

The problem is that much of the brightening outlook south of the border is based on artificial factors — the Federal Reserve’s US$600-billion infusion of cash and Washington’s recent extension of the Bush tax cuts and other goodies. The longer-term structural problems persist, said Madani.

Earlier this week, the International Monetary Fund forecast that Canada’s economy would limp along at a 2.3 per cent clip in 2011.

But there are also a few optimists, including the TD Bank, which sees growth rebounding to 3.2 per cent next year based on stronger demand for Canadian exports south of the border.

There were a few other strengths in October’s data: the home resale market pushed up business for real estate agents and brokers by 5.1 per cent.

Meanwhile, wholesale trade grew 0.5 per cent, driven by better sales of motor vehicles and parts, along with personal and household goods. Sales of furniture, home furnishings and electronics also advanced.

In other economic news Thursday, Statistics Canada reported that average weekly earnings of non-farm, payroll employees rose by 4.4 per cent to $863.33 between October 2009 and October 2010.