The Recovery Slows

In February, Canada experienced its slowest economic growth since October 2009. Of course, no one expected the initial rapid rebound out of recession to continue forever.

Monthly growth of 0.3% corresponds to annual growth of 3.7%, which is quite strong by historical standards and stronger than the 3.2% US growth estimated this morning for the first quarter.

Yesterday, Statistics Canada reported that payroll employment rose 0.1% in February. So, employment is clearly not recovering as much as output. To most Canadians, the job market is more important than Gross Domestic Product (GDP).

The Recovery in Perspective

Canada’s all-industry GDP peaked at $1,241 billion in July 2008 and plummeted to $1,185 billion in May 2009. It has since come back almost two-thirds of the way, reaching $1,221 billion in February 2010. Annualized output is now $36 billion above the trough, but still $20 billion below the peak.

GDP increased by $4 billion in February. If that pace continues, output will return to its pre-crisis peak this summer. Of course, since population continued to grow during the recession, Canada will still be behind in per capita GDP.

Sectoral Breakdown

Manufacturing continued to be the main driver of growth in February. However, this manufacturing recovery had been presaged by gains in wholesale trade and transportation, which connect industry to consumer and export markets. February’s weakness in wholesale trade and transportation may be a sign of slower growth to come.

While residential construction was up 2.2%, total construction was up only 0.1%. These figures reflect reduced business investment in engineering and structures.

Given remaining excess capacity, weak business investment may not be surprising. But it does question the wisdom of pressing ahead with costly federal and provincial corporate tax cuts, which were supposed to spur higher investment.

UPDATE (May 1): Quoted in The Hamilton Spectator